Rogue brokers (and the firms that hire you) watch out…your world is getting smaller (and more regulated).
According to an article in Investment News this week by Reporter Bruce Kelly, the Massachusetts Securities Division will begin asking broker-dealers to hand over their hiring information — who, what, where, and how bad. The move is part of a growing effort by regulators to crack down on rogue brokers and follows on the heels of a similar announcement made by Financial Industry Regulatory Authority (FINRA) Chairman and CEO Richard Ketchum at the FINRA annual conference last month.
Who are they targeting?
In the line of fire are firms where more than 15 percent of current reps have at least one existing disclosure incident on record. Ouch!
Headed by Secretary of the Commonwealth William Galvin, the Massachusetts Securities Division sent letters (also known as a “sweep”) to 241 firms falling into that basket. Disclosure events include disputes that end up in securities arbitration, illegal conduct, and so on.
The aim of the letter is to gain insight and the details of these broker-dealers’ hiring policies and procedures, and to make it harder for brokers with issues to stay in business.
Per Galvin, his “office diligently works to keep the bad actors out of the commonwealth. 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.”
Hire bad actors / enjoy more scrutiny
Massachusetts’ action is in keeping with regulators’ general interest in ensuring broker-dealers and other financial industry participants continue to push forward a “culture of compliance,” because as FINRA’s Ketchum noted, brokers with checkered backgrounds can undermine a firm’s culture and turn it into a place that arms investors.
For its part, FINRA is warning firms not to hire repeat offenders. To do so risks more oversight. The Authority says that those hiring brokers with misconduct reports will be scrutinized more closely. Moreover, FINRA is stepping up its use of data to identify serial wrongdoers who keep resurfacing. It’s a case of the same dirty laundry hanging from a different clothesline.
The Massachusetts sweep is requesting hiring information from January 2014 to the present. Broker-dealers receiving its letter must include the number of brokers fired or placed on heightened supervision during that period. Firms must respond by June 20, 2016.
Are you ready?
Greater FINRA scrutiny and the Massachusetts’ letter are just the beginning. But what it means for financial services firms and their compliance professionals is more data to review, archive, and retrieve whenever the regulators require it. And you know they will…
What’s your plan? Do you have the right processes and procedures to create a “culture of compliance” in place? Sticking your head in the sand and ignoring the issue is not a strategy. The smart money is planning ahead. Are you?
…Let’s talk (212-233-1155). Ask about Patrina’s comprehensive compliance solutions and compliance recordkeeping specifically designed for the financial services community.