Wall Street critic Sen. Elizabeth Warren, D-Mass., is demanding that Finra do more to protect investors from both advisers who have a history of misconduct and the firms that keep hiring them.
Adviser misconduct continues because of ineffective sanctions for advisers, Ms. Warren wrote in
a letter she and Sen. Tom Cotton, R-Ark., sent Wednesday to the chairman and CEO of the
Financial Industry Regulatory Authority Inc., Richard G. Ketchum.
“Each day that Finra fails to take stronger action is another day that working families will be exposed to an unacceptably high risk of financial adviser misconduct,” they wrote in the letter.
The senators referenced a
research paper released in February that found only about half of advisers with a record of misconduct lost their jobs and 44% found new industry positions within a year. It also said a third of advisers with a record of violations are “repeat offenders.”
(More: Richard Ketchum, FINRA chief executive, to retire)
Their letter said the paper shows some firms seem to “specialize” in misconduct and employ multiple advisers with these poor records. These firms also tend to cater to vulnerable customers, such as the elderly and those with less education, the senators wrote.
Finra shares the senators' concerns and is "pursuing measures to address them,” a Finra spokesperson said Thursday.
And when grilled about the paper's findings in March at an unrelated Senate subcommittee hearing, Mr. Ketchum told Ms. Warren that Finra addresses repeat offenders and bars hundreds of registered representatives each year.
In 2015, Finra permanently barred nearly 500 individuals and 25 firms from the industry, according to the brokerage industry's self-regulatory organization.
Finra also began earlier this year doing targeted examinations of
firm culture and how it might influence its ability to follow securities rules.
In the letter, the senators requested Mr. Ketchum report back by June 15 on “specific steps” the self-regulator is taking to address adviser misconduct, repeat offenders and the problem of firms employing a large number of advisers with a history of violations.
“This behavior exposes investors to real risk,” they wrote.
