Broker-dealers are taking steps to avoid the designation of “Restricted Firm” that could be imposed by a new Financial Industry Regulatory Authority rule, according to Financial Advisor.
Under Rule 4111, which took effect Jan. 1, firms with a significant history of misconduct would be labeled as restricted firms and would have to deposit cash or qualified securities in a segregated, restricted account and adhere to other specified conditions or restrictions that are in the public interest.
Last week FINRA officials said firms have begun terminating some representatives with prior disciplinary histories or compliance issues in an effort to avert the restricted status.
On June 1, FINRA will begin the process of calculating which of its 3,400 broker-dealer firms meet the preliminary criteria to be considered a restricted firm. The authority will notify the firms that are at risk of being placed onto the list, and those companies will then have 30 days to terminate brokers who might put them over the threshold.
Kosha Dalal, vice president and associate general counsel in FINRA’s Legal Policy Division, said the terminations that have already begun are an effort by firms to take proactive steps to reduce their ranks of riskier individuals.
Those representatives who are discharged cannot be rehired for a period of one year, and if they are hired by another firm, that firm would have to discuss the matter with FINRA. The authority also plans to file a proposal with the Securities and Exchange Commission that restricted firms would be designated as such on their BrokerCheck reports.
Rule 4111 is designed to help protect investors from the risks presented by broker-dealers with a history of misconduct and who employ a high percentage of brokers with disciplinary problems.
Financial professionals who work for broker-dealers, RIAs or other financial service companies operate in a highly regulated industry that is overseen by the SEC, state regulators and other self-regulatory organizations such as FINRA and various exchanges. If you are the subject of a regulatory proceeding, contact Hyman Cotter PC at 312-291-4600 or through our online contact form for a free consultation.
