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FINRA proposes identifying “restricted firms” on BrokerCheck records

On Behalf of | Jul 29, 2022 | FINRA Compliance

The Financial Industry Regulatory Authority has proposed publicly identifying broker-dealers designated as “restricted firms” on their BrokerCheck reports, according to Financial Advisor.

FINRA has submitted its proposal to the Securities and Exchange Commission for approval. FINRA’s Rule 4111 categorizes restricted firms as those with a significant history of misconduct. Under the rule, which took effect earlier this year, those firms will be required 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.

Disclosing a firm’s restricted status would add to the information that is publicly accessible on BrokerCheck. It is a free tool from FINRA that can help investors research the professional backgrounds of brokers and brokerage firms, as well as investment adviser firms and advisers.

A public comment letter about FINRA’s proposal was submitted to the SEC by Michael Edmiston, president of the Public Investor Advocates Bar Association. He called the proposal to make public the names of restricted firms “a step in the right direction”, but added that most investors are unaware of the availability of BrokerCheck as a resource for information about broker-dealers. He called for additional outreach efforts to draw attention to the importance of BrokerCheck.

On June 1, FINRA began the process of determining which of its 3,400 member firms will be categorized as restricted firms.

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 Lewitas and Hyman at (888) 655 6002 or through our online contact form for a free consultation.