As the financial advice industry makes efforts to increase the diversity of its workforce, Finra’s registration form for individuals who are applying to be licensed as registered representatives has been cited as a barrier to achieving that goal.
This spring, the Financial Industry Regulatory Authority Inc. asked for industry comments on whether its rules or processes were impeding diversity and inclusion in the industry.
Some of the letters the self-regulatory agency received in response zeroed in on the registration form, known as the Form U4. The form, which runs 39 pages, asks for the individual’s name, address and Social Security number; personal information, like date of birth, country of birth, height and weight; the individual’s work history; and whether the individual has any convictions or arrests, liens or judgments.
A few of the comment letters argued that requiring the disclosure of criminal convictions and arrests could discourage or disqualify some minority applicants who might otherwise go on to become valuable members of the advisory industry, given the well-documented racial disparities in the U.S. criminal justice system.
Studies show that members of minority groups are more likely to be arrested than white Americans, and that they’re also more likely to be convicted. For example, in 2016, Black Americans made up 27% of those arrested in the U.S., double their share of the population, and Black youths made up 35% of juvenile arrests while comprising 15% of Americans in that age group.
Finra’s mandate is to protect U.S. investors and safeguard the financial markets, so determining whether or not the people who are applying to join the industry have engaged in criminal activity seems like a legitimate concern for the agency.
As the comment letters note, though, the Form U4 casts a wide net. It asks applicants to list not only convictions, but whether they were ever charged with a crime, whether or not that resulted in a conviction. There’s no time limit, so the incidents could have occurred decades in the past or when the applicant was still a minor. And the form requires people to list all felonies and some misdemeanors — not only those involving financial crimes and other serious offenses, but getting caught using drugs or driving drunk.
Why should an arrest related to using marijuana interfere with anyone’s career at this point, given that marijuana use has been legalized or decriminalized in a number of states? And should something that happened when applicants were teenagers still be held against them?
As the comment letters suggested, it’s time for Finra to think about revising Form U4 and limiting the brushes with the law that applicants are required to list. The regulator should limit the time frame and also the types of crimes it needs to know about. In the process, it could pave the way for a more diverse industry.
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