Finra CEO Robert Cook promises to give brokerages more guidance on overseeing rogue brokers

Initiative is part of an effort to crack down on brokers who move from firm to firm and put investors at risk

Jun 12, 2017 @ 2:04 pm

By Mark Schoeff Jr.

Finra intends to help brokerages better identify and supervise brokers with checkered disciplinary histories who may pose risks to investors.

In coming months, the broker-dealer self-regulator will delineate Finra's expections, CEO Robert Cook said during a speech at Georgetown University Monday.

The Financial Industry Regulatory Authority Inc. put high-risk brokers at the top of its examination priorities list for this year, indicating that it is taking a look at whether brokerages hiring them are implementing heightened supervision to prevent future misconduct. In the ongoing listening tour that has marked the first year of his tenure, Mr. Cook said that Finra members have asked for more direction.

"Based on our conversations with firms, there's potential value in our providing some heightened guidance about what we think they should be looking at," Mr. Cook said. "Our intention is to provide a better understanding of what our expectations are about [as to] how they should go about identifying brokers who may merit heightened supervision and about what the elements of heightened supervision might be."

Finra has been under pressure for years to crack down on recidivist brokers who bounce from firm to firm. Finra has put in place a high-risk broker program that has resulted in barring 120 brokers from the industry since 2014, Mr. Cook said. Another 420 are no longer registered with a Finra-member firm.

At its May meeting, Finra's board advanced proposals that would allow tougher penalties for brokers with certain past infractions, enable disciplinary hearing panels to restrict the activities of brokers and firms while a case is on appeal, and require firms to strengthen supervision while a "disqualification request" is under review or a broker is appealing a hearing decision.

The board has established a special working group on high-risk brokers led by former Securities and Exchange Commission chairwoman Elisse Walter.

More rulemaking could be on the way.

"We are also considering additional measures," Mr. Cook said in his Georgetown speech. "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."

Any such proposal would be put out for comment, Mr. Cook said. Finra rules must be approved by the SEC.

Finra oversees approximately 3,800 brokerages and 634,800 registered representatives.

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