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Compliance Concepts

FINRA's High-Risk Registered Rep Program

January 10, 2018



FINRA has a program for identifying and monitoring High-Risk Registered Representatives (“RR’s”) – those more likely to cause harm to customers. This program is the subject of a new FINRA podcast (8-1/2 minutes in length), featuring Mike Rufino, a FINRA EVP and Head of Regulation - Sales Practice. Along with Chip Jones, FINRA SVP of Member Relations and Education, this podcast offers an overview of the program, the criteria FINRA uses to identify high-risk activity, and tools and resources available to help firms perform their own reviews.


METHODOLOGY/CRITERIA USED BY FINRA TO IDENTIFY HIGH-RISK RR’S.    FINRA uses a risk-based methodology to identify highest-risk individuals. Here are some of the criteria that go into FINRA's determinations:


  • An RR’s current and past associations with firms that have been highly-disciplined or were expelled for sales practice issues.
  • Length of time an RR has spent with such firms.
  • Number of such firms with which an RR has been associated.
  • Pattern of an RR’s migration from one ‘bad’ firm to another and another.
  • Number and aging of disclosures on an RR’s CRD file.
  • Number of customer complaints and arbitrations on an RR’s Forms U4 and U5.


TOOLS & RESOURCES FIRMS CAN USE TO IDENTIFY HIGH-RISK RR’S.   When it comes to identifying high-risk RR’s, a brokerage firm has at its disposal certain information that's not readily accessible to FINRA. For example:


  • Does the RR’s book of business contain a large number of senior investor customers, or institutional accounts?
  • What types of products does an RR typically sell to customers?
  • What is the RR’s lifestyle, and has the firm noticed any behavioral changes?
  • How often does an RR show up on exception reports - e.g., high levels of trading, as identified by the clearing broker?


FINRA ALERTS TO FIRMS.    In 2018, FINRA will make a conscious effort to tell firms when any of its RR’s are added to the High-Risk Registered Rep Program.


WHY FINRA’S HIGH-RISK PROGRAM IS NOT A ‘ROACH MOTEL’.    Placement on the High-Risk Program is not necessarily a “lifetime sentence.” Instead, RR's can be dropped from the list if and when FINRA’s annual assessment indicates that the RR no longer exhibits high-risk behavior or associations.