FINRA to Weigh Rule Changes Targeting High-Risk Brokers

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By Antoinette Gartrell

FINRA will propose rule changes “in the coming months” that would boost regulatory requirements for firms that take on high-risk brokers, the self-regulatory organization’s chief executive officer said June 12.

The Financial Industry Regulatory Authority also will issue regulatory guidance clarifying firms’ existing supervisory obligations relating to brokers that pose special risks, CEO Robert Cook said at a Washington event co-hosted by the Georgetown University Center for Financial Markets and Policy.

“A few bad actors can not only devastate the investors they target, but also threaten confidence in the wider financial system,” Cook said. FINRA has barred approximately 120 individuals in the past five years who were identified as high-risk brokers, he told the gathering.

New York lawyer Jacob Zamansky, Zamansky LLC, said FINRA still isn’t doing enough. “High-risk brokers are preying on investors and it needs to be stopped. It’s a real problem,” he told Bloomberg BNA. Howard Meyers, director of New York Law School’s Securities Arbitration Clinic, agreed saying “it’s a step in the right direction, but more can be done in terms of investor protection.”

Bad Broker Blueprint

According to Cook, one proposal would tag a brokerage a “taping firm” in BrokerCheck, FINRA’s online data base, if a certain number of its brokers worked at a later expelled broker-dealer within the past three years. The designation would indicate that the firm is required to tape record all of its brokers’ phone calls with investors. FINRA also has said it is considering establishing additional fees and revamping the waiver requirements for certain qualifying exams.

FINRA also plans to double the number of examinations it conducts of high-risk firms this year, Cook said.

The SRO also is planning to offer guidance to help firms identify high risk brokers and monitor them properly.

“It’s not a one and done situation, it’s one we’re focusing on for years to come,” Cook said.

Zamansky, who represents investors in FINRA’s arbitration forum, said FINRA should impose suspensions or industry bars if a broker has three customer complaints because “it’s only going to hurt other investors if they’re allowed to stay in the business.”

Meyers, whose clinic represents small investors in FINRA arbitration proceedings, also endorsed the three-strike approach and added that brokers-dealers should automatically send new clients relevant BrokerCheck reports along with other required disclosures when they first open an account. “There are a lot of people who don’t even know that BrokerCheck exists,” he said.

To contact the reporter on this story: Antoinette Gartrell in Washington at agartrell@bna.com

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

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