SEC approves FINRA rule change meant to curb rogue brokerages

On Behalf of | Aug 3, 2021 | FINRA Compliance

The Securities and Exchange Commission approved a rule change proposed by FINRA intended to penalize brokerage firms that have higher levels of disciplinary problems or those who employ a high number of registered representatives with disciplinary records, according to a report in The Investment News.

Under the rule, which will become effective in six months, these firms (commonly known as “rogue brokerages”) will be formally categorized as “restricted firms,” if they have a high percentage of brokers with disciplinary problems. The firms would then be given the option of reducing their workforce in an appropriate manner in order to avoid this designation. Restricted firms will be required to deposit cash or qualified securities into an account controlled by FINRA, which could then be used to pay for arbitration awards.

The proposal is part of an effort by FINRA to increase the oversight of rogue brokers in the securities industry who could potentially harm investors and then who often times lack funds to pay arbitration awards. The SEC said it would continue to monitor the issue in an effort to determine whether additional measures might be needed to “address recidivist firms and brokers.”

Lewitas Hyman represents financial professionals, financial institutions and investors in investment loss, employment and disclosure matters, and in regulatory investigations. Contact us by phone at (312) 291-4600 or through our online contact form for a free consultation.

Share This