FINRA Considering Revised Rules For High Risk Brokers

Financial industry regulators are seeking to put tougher rules in place to oversee the outside business activities of brokers and dealers, which could pose a risk to investors. 

As part of an ongoing review of its practices, the Financial Industry Regulatory Authority (FINRA) issued a regulatory notice (PDF) this month, which seeks comments on existing and proposed regulations design to oversee activities by broker-dealers outside of their firms. Comments are being taken until June 29, 2017.

“These rules were designed to protect investors from potentially problematic or risky activities that are unknown to the firm but could be perceived by the investing public as either part of the firm’s business or having the firm’s imprimatur,” FINRA explained in a press release. “In addition, the rules protect firms from reputational or litigation risks when employees engage in business and securities activities outside of the firm.”

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FINRA is a non-governmental agency that oversees the financial industry, which is designed to provide investor protection and market integrity by writing and enforcing rules that govern the activities of 3,800 broker-dealers and more than 633,000 brokers.

The group is seeking feedback on how the current rules have performed thus far, and proposes changes that could increase sanctions against broker-dealers who take high-risk actions outside of their firm that could threaten their investors, could restrict some activities by firms, and could allow FINRA to level more severe disciplinary actions against broker-dealers who have a history of misconduct.

The proposed rule changes would also let FINRA disclose when a firm has increased requirements, such as mandatory recording of customer telephone conversations, due to a high amount of employees who have faced disciplinary action from FINRA.

The review and potential changes are part of what is called the FINRA360 Initiative. The initiative seeks to review all of FINRA’s operations and programs.

“Regularly reviewing significant rules to ensure they remain effective at protecting investors in an efficient manner is a key priority that aligns with our FINRA360 Initiative,” FINRA President and CEO Robert W. Cook said in the press release. “Successful self-regulation requires continuous renewal


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