In a recent interview with InvestmentNews, Financial Industry Regulatory Authority (FINRA) Executive Vice President for Regulatory Operations Susan Axelrod told Reporter Mark Schoeff, Jr. that as part of its crackdown on rogue brokers the Authority is ranking all 634,403 registrants by risk. Factors to consider include prior regulatory disclosures, disciplinary actions, and employment history. Moreover, she said, FINRA is using that information to target those brokers it believes pose the biggest threat to investors.
What’s your number?
Speaking at the National Society of Compliance Professionals conference in Washington, DC, Axelrod emphasized that it will be business as usual for FINRA, just more of it going forward. “We’ll take in information. We’ll go to the branch. We’ll do interviews. You’ll continue to see more of that in 2018.”
According to Axelrod, FINRA is focusing on high-risk profiled brokers to ensure it allocates its resources cost-effectively in its mission to crack down on malfeasance. In turn, she said the Authority will spend less time and money reviewing firms that follow securities law and industry rules — that is firms with a history of “doing the right thing.”
Do you have a number?
With an eye to ensuring “investors are protected every day,” Axelrod said FINRA will focus its “exam work and…surveillance work on individuals that pose the greatest risk to customers.” This in no way means that FINRA will publicly identify the high-risk brokers it is targeting.
That would pose significant challenges if we preemptively published “a list with people’s names, where we haven’t proven any violations, she said, adding, nonetheless, “If we are showing up at a firm asking for information on a particular registered person and coming on site to interview that person, that’s a clue they’re on our high-risk broker list.”
Knock. Knock. It’s FINRA here.
For firms where FINRA does come a-callin’ the inquiry would focus on the products that the registered representative is selling, to whom they are selling those products, and whether the rep is violating securities laws or FINRA rules.
This focus follows on the heels of the FINRA board’s approval in July 2017 of a rulemaking process that permits the regulator to put more pressure on firms that hire brokers with checkered regulatory histories. Next step is for the regulator to release specific proposals for comment. It isn’t clear when that will occur.
Got some bad actors?
If you do, be forewarned that FINRA is watching and initiating more targeted efforts to better identify and supervise “high-risk” firms and brokers. Key red flags in FINRA’s “sights” include sales practices, fraud and deception, and the protection of client assets. It is also targeting individual brokers based on an analysis of information is derived from a variety of sources, including regulatory reports by firms and brokers, our examination program, employment histories, past associations with problematic firms, customer complaints, and any history of informal actions levied by FINRA. High-risk firms typically face examinations annually by specialized examiners.
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