The Financial Industry Regulatory Authority (“FINRA”) recently announced changes to its supervision rule which requires firms to conduct background checks on applicants for registration. The background checks cover both first-time registrants as well as transfers, and are meant to ensure the accuracy and completeness of information contained in an individual’s Form U4. Information contained in the U4 forms the basis of publicly available information of all registered persons which is accessible on the BrokerCheck website. The rule changes, which have been approved by FINRA’s Board of Governors, require further approval from the Securities and Exchange Commission (“SEC”) before taking effect. Under the rule change, a firm would be required to adopt written procedures for verifying an applicant’s information including conducting public records searches for bankruptcies, judgments, liens, civil litigations and criminal records. The rule change is the most recent effort by FINRA for additional disclosure by registered representatives. FINRA recently submitted a proposed rule to the SEC requiring registered representatives to disclose financial incentives such as “upfront payments” and “potential future payments” exceeding $100,000 when moving from one firm to another.
