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­FINRA giving brokers opportunity to avoid ‘Restricted Firm’ designation

On Behalf of | Sep 26, 2022 | FINRA Compliance

The Financial Industry Regulatory Authority is giving brokerages an opportunity to avoid the designation of ‘Restricted Firm’, according to a report by AdvisorHub.

FINRA Rule 4111, which took effect Jan. 1, categorizes restricted firms as those broker-dealers with a significant history of misconduct. They will now be required to deposit cash or qualified securities in a segregated account to pay customers arbitration claims and adhere to other specified conditions that are in the public interest.

Recently, FINRA has been sending out letters offering firms a one-time chance to keep from falling into the restricted category by terminating brokers with disciplinary problems on their records within 30 days. There was no immediate word on how many terminations would be necessary to meet the threshold. Brokerages receiving the letter were informed that they meet the preliminary criteria for identification set forth in Rule 4111 but can avert further review by successfully reducing the number of high-risk brokers.

On June 1, FINRA began the process of determining which of its 3,400 member firms nationwide will be categorized as restricted firms, and the authority said the process is proceeding as planned.

FINRA has also proposed identifying the firms that are labeled as restricted on their BrokerCheck reports, a plan that will require SEC approval.

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