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Finra Seeks Tighter Control Over Rogue Brokers

July 25, 2017

Finra wants to ramp up its ability to keep risky brokers out of the industry, according to a letter to members.

Finra’s board has allowed the industry self-regulator to seek public comment on an amendment to its application rules that would require advice practices to have a “materiality consultation” when hiring individuals with a history of past risk events, according to the letter.

Advice practices seeking expansion in such a way, either through hiring a broker or through including the broker as an owner, control person or principal of the firm, would not fall under Finra’s safe harbor provisions if the amendment is approved. The safe harbor provisions let businesses conduct certain expansion activities without triggering the need to seek Finra approval.

Finra would also be able to assess the submission and require the firm to file a continuing membership application in such cases.

Finra also wants the option of denying a membership application altogether to individuals facing pending arbitration claims. As with the hiring or appointments of brokers with past risk events, Finra would be able to require the member firm to apply for continuing membership.

The move comes a little over a month after Finra CEO Robert Cook said the regulator plans to issue guidance on the obligations of member firms when it comes to risky brokers, ThinkAdvisor writes.

Robert Cook (Getty)

Finra has also asked the SEC for permission to broaden its pools of non-arbitrators, according to a proposed rule change. The regulator wants to include in the pool individuals who are qualified to serve as arbitrators but disqualified from serving as public arbitrators. Finra’s 2015 amendment to the eligibility criteria, which among other restrictions prohibited anyone with past employment in the financial industry from serving as public arbitrators, had disqualified over 800 otherwise eligible arbitrators, creating an eligibility gap, according to Finra.

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.