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FINRA Unveils Ranking System To Identify Rogue Brokers

By George C. Miller, Esq. of Shustak Reynolds & Partners, P.C. posted on Monday, November 20, 2017.

George C. Miller, Esq.
619.696.9500 ext. 105
[email protected]

FINRA Unveils Ranking System To Identify Rogue Brokers

FINRA recently approved new policies aimed at increasing supervision and controls over so-called “high risk” brokers and financial advisors–e.g., those with a history of significant past misconduct or regulatory problems.  Through its new special exam unit, FINRA will now issue internal “rankings” of the 640,000 registered representatives it oversees, paying closer attention to those who may pose the highest risk to investors.  As part of the ranking process, FINRA will consider prior regulatory disclosures, disciplinary actions and the broker’s history of employment in the securities industry.  Advisors with multiple disclosures will score higher in the rankings and draw increased attention from FINRA. 

The ranking system evidences FINRA’s belief that brokers with past regulatory disclosures are more likely to engage in future misconduct.  There is evidence to suggest that belief is correct.  A February 2016 study entitled The Market for Financial Adviser Misconduct concluded, among other things, that prior offenders were five times as likely to engage in future misconduct when compared to the average financial advisor.  But since only 8% of licensed individuals have some history of regulatory discipline, it begs the question of whether FINRA could be throwing too many eggs in one basket.  Certainly not all advisors with prior discipline will become recidivist offenders.  By concentrating resources on prior offenders, FINRA may create the opportunity for new bad actors to emerge and fly under the radar.  FINRA’s crackdown on high-risk advisors will remain a priority, however, as later this year FINRA is slated to publish new guidance to member firms who hire these brokers.    

Shustak Reynolds & Partners, P.C.’s experienced San Diego FINRA and securities attorneys have extensive experience representing brokerage firms, brokers and registered representatives in FINRA inquiries, investigations and enforcement actions. Contact us today for a confidential, complimentary consultation.

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