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Rules & Regulations

High-Risk Brokers - FINRA Seeks Comments on Proposed Rule Changes

May 1, 2018
FINRA seeks comment on proposed rule amendments that would impose additional restrictions on member firms that employ brokers with a history of significant past misconduct. These brokers, while relatively small in number, may present heightened risk of harm to investors, and any misconduct by them also may undermine confidence in the securities markets as a whole. FINRA RegNote 18-16.


FINRA is requesting comment on proposed amendments to:


1.   The RULE 9200 SERIES (Disciplinary Proceedings) and the RULE 9300 SERIES (Review of Disciplinary Proceedings by National Adjudicatory Council and FINRA Board; Application for SEC Review) … to allow a Hearing Panel to impose conditions or restrictions on the activities of member firms and brokers while a disciplinary matter is on appeal to the National Adjudicatory Council (NAC), and to require member firms to adopt heightened supervisory procedures for brokers during the period the appeal is pending;


2.   The RULE 9520 SERIES (Eligibility Proceedings) … to require member firms to adopt heightened supervisory procedures for brokers during the period a statutory disqualification (SD) eligibility request is under review by FINRA;


3.   RULE 8312 (FINRA BrokerCheck Disclosure) … to disclose the status of a member firm as a “taping firm” under Rule 3170 (Tape Recording of Registered Persons by Certain Firms); and


4.  The NASD RULE 1010 SERIES (Membership Proceedings) (MAP rules) … to place additional limitations on member firms by requiring a member firm to first submit a written letter to FINRA’s Department of Member Regulation, through the Membership Application Program Group (MAP Group), seeking a materiality consultation when a natural person that has, in the prior 5 years, one or more final criminal actions or two or more specified risk events seeks to become an owner, control person, principal or registered person of an existing member firm. Specified risk events (as described in detail below) generally means final, adjudicated disclosure events disclosed on a person’s or firm’s Uniform Registration Forms.


FINRA is focusing attention on high-risk brokers by publishing Regulatory Notice 18-15  to reiterate the existing obligation of member firms to adopt and implement tailored heightened supervisory procedures under RULE 3110 (Supervision) for high-risk brokers; and revising FINRA’s qualification examination waiver guidelines and related procedures to more broadly consider past misconduct when considering examination waiver requests.


[Click link below for complete discussion of rule amendments.]