Massachusetts follows Finra’s lead with crackdown on rogue brokers

Piggybacking on a recent Finra crackdown on rogue brokers, the Massachusetts Securities Division on Monday said it was asking broker-dealers to hand over hiring information.
Headed by Secretary of the Commonwealth William Galvin, the Massachusetts Securities Division said it had sent a letter to 241 firms with above average number of reps with current misconduct reports on their records.
The aim of the letter, which is commonly known as a “sweep” in brokerage parlance, is to learn details of broker-dealers’ hiring policies and procedures, according to a statement from the Massachusetts Securities Division.
“My office diligently works to keep the bad actors out of the commonwealth,” Mr. Galvin said in a statement. “However, we need and expect the broker-dealer community to assist us by aggressively policing and monitoring their own workforce. This sweep is intended to establish how the industry is meeting this critical investor protection responsibility of keeping the rogue broker out of the industry.”
Mr. Galvin’s words echo those of other securities regulators. In a speech last month at the Financial Industry Regulatory Authority Inc.’s annual conference in Washington, Finra chairman and CEO Richard G. Ketchum said brokers with checkered backgrounds can undermine a firm’s culture and turn it into a place that harms investors.
Firms that hire such brokers will receive stronger scrutiny from Finra, the industry-funded broker-dealer regulator. Finra is stepping up its use of data to identify brokers with a record of compliance problems who keep resurfacing, and is warning firms not to rehire them. Earlier this year, Finra launched a target examination designed to evaluate brokerages’ “firm culture.”
The Massachusetts sweep requested hiring information from January 2014 to the present, including the number of brokers fired or placed on heightened supervision in that period. Firms have until June 20 to respond.
The sweep letter went to firms in which over 15% of their current reps have at least one current disclosure incident on their record, according to the statement. That exceeds the average percentage found among all Massachusetts-registered broker-dealers, according to the statement.
Disclosure events can run the gamut of allegations from disputes that end up in securities arbitration to illegal conduct, according to the Massachusetts Securities Division.