FINRA Targets Rogue Brokers with History of Abuse

The Financial Industry Regulatory Authority (FINRA) has released a serious of proposals aimed at implementing tougher supervisory protocols on brokers with a history of misconduct. Sponsoring brokerages would be forced to institute heightened supervisory measures on these brokers or be held responsible for any subsequent transgressions.

What Is a Rogue Broker?

Also known as rogue brokers, financial advisors with a past demonstrating recidivist tendencies have been the target of regulatory scrutiny for many years now. However, FINRA has only recently committed to taking steps to reign in this relatively "network" of brokers with large numbers of infractions. Previously, FINRA relied upon sponsoring brokerages themselves to supervise high-risk brokers on their own; or they expected investors to research whether or not their financial advisor was a rogue based on their CRD Report or BrokerCheck report.

FINRA's Proposed Amendments to Rules for Rogue Brokers

FINRA CEO Robert Cook promised last summer to take action, and the wheels are in motion. The agency has floated the following ideas for reforms to reign in the rogues:

  • Require firms interested in hiring brokers with a history of criminal actions to consult with FINRA first
  • Require firms to disclose whether they record their financial advisors' conversations
  • Require firms to impose heightened supervision of brokers
  • Require firms to allow FINRA to impose restrictions while a disciplinary matter is under appeal 
  • Consider statutory disqualification of a broker

Current Requirements Regarding High-Risk Brokers

Relatedly, FINRA issued a separate regulatory notice regarding the current heightened supervisory procedures that brokerages should take to monitor high-risk brokers.

Nothing is set in stone yet. FINRA's proposals will be open for public comment until the end of June, whereafter they must be ratified by the Securities and Exchange Commission to become statute.

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