The industry can expect more guidance from FINRA on high-risk, recidivist, bad actors, and rouge advisors, and the brokerages that hire them.
FINRA is an industry-financed self-regulated organization that oversees about 3,800 brokerages and 630,000 brokers. It has an operating budget of about $1 billion and 3500 staffers.
Earlier this week, FINRA CEO Robert Cook shared FINRA’s upcoming initiative.
“Our securities markets are fundamentally sound, and the vast majority of the firms and individuals FINRA oversees are dedicated to serving their clients with integrity and professionalism.”
“Our membership application program is identifying new and continuing member applicants that employ, or seek to employ, brokers with problematic regulatory histories, and is considering carefully whether these applicants have the experience and controls to adequately supervise these brokers.”
“FINRA is evaluating firms’ branch office inspection programs, as well as their supervisory systems for branch and non-branch office locations, including independent contractor branches.”
“FINRA expanded its program to identify and examine high-risk brokers and the initiative is already yielding dramatic results. Over the past five years, 40% of the firms deemed high-risk are no longer registered with FINRA.”
“A broker who has an unpaid lien because of a debt accrued due to a medical issue in her family must disclose that lien. That event should not be treated the same as fraud or stealing money from customers.”
“We are also considering additional measures. One approach would be to amend our rules to establish additional requirements when a firm or individual meets specified risk criteria in order to further deter misconduct and incentivize greater focus on the relevant risks.”
“These additional resources, which augment the focus on high-risk brokers that continues across the rest of our exam program, should enable us to improve our identification efforts and double the number of examinations we conduct in the program this year as compared to 2016.”
“Firms must do their part by, among other steps, reviewing their hiring practices, monitoring their brokers, improving supervisory systems and investigating red flags suggestive of misconduct.”
“FINRA is beefing up analytics so staffers can know where a suspect broker works and the degree to which his or her co-workers have committed misconduct.”
“We must consider fairness and due process. FINRA does not possess a crystal ball, someone who we may identify as a high-risk broker for oversight purposes is not necessarily a bad actor.”
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