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Watchdogs Want Heightened Supervision for More Broker-Dealers

October 9, 2018

The North American Securities Administrators Association is calling for broker-dealers to have policies and procedures for heightened supervision of their registered representatives, according to ThinkAdvisor.

That’s because NASAA’s examination of broker-dealers found that such policies are effective, the publication writes. Thirty state security regulator members of NASAA conducted 165 exams of 121 broker-dealers, including wirehouses and independent and introducing firms, and found that 90% of the firms with a representative on heightened supervision reported no complaints against the representative, according to ThinkAdvisor.

Broker-dealers overall have a long way to go, however, according to NASAA’s report, the publication writes. Of the 121 firms studied, 51 had at least one representative on heightened supervision — but 49% of the firms that had heightened supervision procedures nonetheless lacked any policies on how a representative could be removed from such a plan, NASAA found, according to ThinkAdvisor.

And less than a quarter of the firms examined had on-site supervisors in charge of enforcing heightened supervision, according to the report cited by the publication.

Meanwhile, around 20% of the firms didn’t enforce their own heightened supervision procedures, according to Frank Borger-Gilligan, NASAA president-elect and chair of the broker-dealer unit which oversaw the exams, ThinkAdvisor writes.

“Broker misconduct is a recurring threat for investors,” said Michael Pieciak, NASAA’s president and Vermont commissioner of financial regulation, said in a statement cited by the publication. “Registered representatives with prior records of misconduct are three times more likely to be repeat offenders than their peers. Heightened supervision of risk-prone registered representatives is a crucial obligation of broker-dealer firms.”

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