FINRA Announces New Rules Affecting Brokers Accused of Misconduct

As the Financial Industry Regulatory Authority (FINRA) continues to support its mission to “protect America’s investors by making sure the broker-dealer industry operates fairly and honestly,” the agency has adopted new rules targeting brokers with a significant history of misconduct. While these rules appear to protect investors from harmful brokers, they add complications to an already fraught disciplinary process. Here’s what brokers need to know about these new changes.

Tightened Oversight

One of the new rules states that a Hearing Officer may “impose conditions or restrictions on the activities of a Respondent member firm or Respondent associated person,” compelling the broker’s firm to implement stricter supervisory procedures. Under this rule, the Department of Enforcement may file a motion to impose such restrictions within the ten days following a notice of appeal or other indication of NAC review. These conditions or restrictions are up to the Hearing Officer to determine; as long as they are “reasonably necessary for preventing customer harm,” the Hearing Officer determines the specifics.

Additional Burdens on Brokerage Firms

According to new Rule 9285, member firms must “adopt a written heightened supervision plan for an associated person who is found to have violated a statute or rule provision in a disciplinary decision, when that disciplinary decision has been appealed or called for NAC review.” This means that the firm must enact a plan of heightened supervision that is “reasonably designed and tailored to include specific supervisory policies,” which they must provide in writing to FINRA within a specified timeframe.

Enhanced BrokerCheck Disclosure Obligations

FINRA has also amended Rule 8312 and adopted Rule 3170 (aka the Taping Rule) that identifies firms with a “specified percentage of registered persons who have been associated with disciplined firms in a registered capacity in the last three years” as “taping firms.” A taping firm must establish and enforce heightened written procedures for supervising and recording phone conversations. Additionally, FINRA must identify taping firm information through BrokerCheck, signaling to the public that a particular firm is subjected to increased procedures and may damage the firm’s reputation.


Learn more about FINRA’s new rules and how they could impact you by calling Judex Law LLC at (303) 523-4022 today.

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