In an effort to crack down on brokerage firms with a significant history of misconduct, the Financial Industry Regulatory Authority (FINRA) adopted Rule 4111. This rule, which went into effect in 2022, allows FINRA to evaluate its 3,400 broker-dealers once annually to determine which firms should be designated “restricted firms.” So far, public reactions have been mixed. Here’s the latest on some of the biggest concerns industry leaders and broker-dealers have about Rule 4111.
A Cumbersome Evaluation Process
While more details about FINRA’s evaluation process are needed, the general outline of how FINRA intends to investigate, designate, and penalize restrictive firms has recently been made available. Starting on June 1 of each year, FINRA will examine the number of risk-related disclosures a particular member firm has in comparison to other firms of similar size. FINRA will rely heavily on publicly available information listed on BrokerCheck. Once FINRA designates a firm as restricted, it will order the firm to deposit money in a restricted deposit account. The aim is to penalize firms that employ a high number of brokers with track records of misconduct.
Concerns About Unfairly Labeling Firms as Restricted
Some industry experts are voicing their concerns about prematurely labeling a firm as “restricted” before finding sufficient evidence to demonstrate it is guilty of misconduct. Since FINRA relies on reportable events listed on BrokerCheck, many of which have not been investigated or corroborated, Rule 4111 may leave firms vulnerable to FINRA unfairly designating them as “restricted.” FINRA claims that it is using BrokerCheck information as one factor in this evaluation process, but many financial advisors and brokerage firms are concerned about the implications and ramifications of this potentially unfair process.
Keeping Your Professional Future as Bright as Possible
Since this is the first year that FINRA will move through the process of enforcing Rule 4111, it’s natural to feel apprehensive about how it will all play out. If you are concerned about unfair or baseless disclosures and how they could affect your career and your brokerage firm, contact an experienced securities law attorney to discuss your situation. Together, you and your attorney can determine the most strategic path forward to defend you from inaccurate disclosures and keep your future as bright as possible.
Learn more about how FINRA’s new rules could affect you and your firm by calling Judex Law, LLC, today at (303) 523-4022 to discuss your concerns with an experienced and friendly securities law attorney.
