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New FINRA rules on Restricted Firms to take effect Jan. 1

On Behalf of | Oct 7, 2021 | FINRA Compliance

The Financial Industry Regulatory Authority’s new rules regarding so-called Restricted Firms will become effective on January 1, 2022, FINRA announced.

Restricted firms are those that have a significant history of misconduct. FINRA adopted New Rule 4111 that requires these firms 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.

The rule is designed to help protect investors from the risks presented by broker-dealers who have a history of misconduct and employ a high percentage of brokers with disciplinary problems. FINRA said it believes that the direct financial impact of a restricted deposit is likely to change the behavior of such firms. The rule change was approved by the Securities and Exchange Commission in August.

If a firm does not comply with the Restricted Deposit Requirement, FINRA will be authorized to issue a notice directing that member firm to suspend all or a portion of its business. Also adopted were New Rule 9561 and amendments to Rule 9559, which establish a new expedited proceeding to implement Rule 4111.

FINRA said the new rule is part of its efforts to enhance programs that address the risk to investors and the broader market from firms and individuals with a history of misconduct.

The complete report on FINRA Rule 4111 can be found here.

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 the Chicago FINRA investigation attorneys of Lewitas Hyman at (888) 655 6002 or through our online contact form for a free consultation.