FINRA Board Signals Approval of Additional Controls on “High-Risk” Brokers

  • June 27, 2017
  • William Heyman

FINRA plays a vital role in regulating the activities of fiduciaries and other financial professionals such as brokers, financial advisors, and retirement planners. The regulatory and enforcement body is authorized to promulgate and enforce regulations intended to protect investors and reduce fraud by firms and individual brokers and dealers.

FINRA’s board recently enact new additional rules enacted rules intended to provide additional protection for investors who utilize “high-risk” brokers. Financial firms, brokers, and other professionals should ensure that their policies and practices comport with these and other relevant standards. While these rules are not currently in effect, they are expected to be approved in the near-term. Firms should utilize this opportunity to conduct a full legal compliance review of all practices and how they relate to FINRA rules.

New FINRA Rules Will Apply to Brokers with Significant Violations

As currently described, the efforts by FINRA will strengthen controls that apply to brokers with a significant history of past misconduct. These more rigorous controls are intended to increase the likelihood that subsequent fraud or improper actions are detected early. Firms should also benefit from this rule because it should provide for greater accountability in a known risk area.

What Will the New Rules Require?

The exact contours of the new, additional rules are expected to be released in a series of rulemaking documents. However, the general thrust and focus of the new rules have been discussed by FINRA. Under the new rules, harsher penalties will be authorized for certain brokers with significant disciplinary history. The rules would also implement hearing panels to restrict or prohibit certain activities by brokers and firms while a disciplinary proceeding is under appeal.

In a second regulatory notice concerning clarifying and expanding a firm’s role in overseeing and supervising certain high-risk brokers, FINRA will authorize firms to take additional steps. One of the proposals expected to be contained within the rule proposal is heightened review for brokers who are facing a statutory disqualification or are appealing a disciplinary matter. The proposal is also expected to contain a provision that will authorize a mandatory disclosure on BrokerCheck to determine if a firm is subject to existing requirements for recording all telephone conversations with customers due to having a specified percentage of registered representatives who were formerly employed by disciplined firms.

Work with an Attorney Experienced in FINRA Litigation and Processes

Brokers and covered financial firms must consider and assess their existing practices and policies regarding high-risk brokers. It is important to note that there are duties and obligations that firms must currently meet regarding the supervision of high-risk brokers. The proposals that will be set forth in a series of several regulatory notices will, however, further strength these requirements and create additional duties. Therefore, even firms that are confident in their high-risk broker practices should engage in a reassessment in the near future to ensure that they will comply with the new and additional requirements announced by FINRA.

The attorneys of the Heyman Law Firm can provide on-point, trusted guidance regarding an array of issues faced by brokers, dealers, and financial firms covered by FINRA. Attorney William Heyman has more than 20 years of experience representing fiduciaries and FINRA members.  To schedule a confidential consultation with an attorney from the Heyman Law Firm, please call 443-687-8802 today.