Finra proposes further restrictions, supervision of high-risk brokers

Proposals would allow restrictions and supervison to be imposed while disciplinary action is still being decided

Apr 30, 2018 @ 4:49 pm

By Mark Schoeff Jr.

Finra released regulatory proposals on Monday that would place further restrictions on brokers with a history of misconduct and require brokerages to implement tougher supervisory procedures for them.

Finra has been under pressure for years to crack down on recidivist brokers, sometimes known as rogue brokers, who have long disciplinary records.

Last summer, Financial Industry Regulatory Authority Inc. CEO Robert W. Cook promised that the regulator would take further action on high-risk brokers.

"These brokers, while relatively small in number, may present heightened risk of harm to investors, and any misconduct by them also may undermine confidence in the securities markets as a whole," the Finra regulatory notice states.

Finra is considering amendments to existing rules that would:

• Allow a Finra hearing panel to impose restrictions on firms and brokers while a disciplinary matter is under appeal with the National Adjudicatory Council.

• Require firms to impose heightened supervision of brokers while Finra is considering "statutory disqualification" of a broker.

• Require firms to disclose whether they are a "taping firm" that must record their registered representatives conversations.

• Require firms to consult with Finra if they want to hire a broker who has had one or more final criminal actions or two or more "specified risk events" within the previous five years.

In a separate regulatory notice, Finra outlined the heightened supervisory procedures that firms should take to monitor high-risk brokers. They include designating a firm principal to implement and enforce the monitoring plan; requiring additional training for the high-risk broker, who also must acknowledge the plan in writing; and maintaining frequent contact and communication between the broker and the supervisor.

Brokers who should be put under more stringent supervision include those with customer-related infractions, criminal histories, those who have been subject to internal firm discipline, those with arbitrations and open or settled customer complaints and those who have been terminated for cause.

"It is essential that firms monitor the regulatory histories of their associated persons and establish additional measures to supervise the activities of those individuals with greater potential of creating customer harm," the Finra regulatory notice states.

The proposals will be open for public comment until June 29. Final Finra rules must be approved by the Securities and Exchange Commission.


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