Warren, Cotton Chide FINRA on Broker Misconduct

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By Rob Tricchinelli

May 11 — A bipartisan pair of senators chided the Financial Industry Regulatory Authority for not doing enough to ferret out misconduct among broker-dealers.

“We write today to ask what specific steps FINRA will take to address the pervasive misconduct among its financial advisers,” Sens. Elizabeth Warren (D-Mass.) and Tom Cotton (R-Ark.) said in a May 11 letter to FINRA Chairman Richard Ketchum.

7 Percent

The senators cited a working paper from University of Chicago and University of Minnesota academics earlier in the year that used FINRA BrokerCheck data to conclude that roughly 7 percent of all brokers have been sanctioned for misconduct (41 SLD, 3/2/16)

“This study demonstrates that FINRA is not doing nearly enough to fulfill its investor protection mission,” the senators, both members of the Senate Banking Committee, wrote.

The study also found that among advisers who were fired for misconduct, nearly half found new jobs in the industry within a year.

“We’ve received the Senators’ letter, share their concerns about these issues, and are pursuing measures to address them,” a FINRA representative told Bloomberg BNA in an e-mail. “FINRA looks forward to working with them on these and other important investor protection issues.”

‘Paramount Responsibility.'

“FINRA has a paramount responsibility to protect investors by addressing misconduct by financial advisers,” Warren and Cotton wrote. “The risks to investors posed by advisers with a disciplinary history are disturbing—but they are not unpredictable.”

The senators asked the self-regulatory organization what steps it is taking to address misconduct, recidivism and firms that hire numerous advisers with disciplinary records. The study found, for example, that nearly 20 percent of the more than 2,000 financial advisers at Oppenheimer & Co. had been disciplined for misconduct.

Their letter refers to “financial advisers,” which was defined in the study as “all brokers and the set of investment advisers on BrokerCheck who are also registered as brokers.”

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com