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Is Your U4 Accurate?: New FINRA Rule Requires Heightened Background Checks

By Jessica A. Antoniades, Esq.  of Shustak Reynolds & Partners, P.C. posted on Monday, June 1, 2015.

FINRA’s new Rule 3110(e) is set to go into effect July 1, 2015. The rule will require many firms to intensify background checks and investigation policies for new hires.  Under the new rule, firms must verify the “good character, business reputation, qualifications and experience of an applicant before the member applies to register that applicant with FINRA.”  Firms must also adopt written procedures to verify the accuracy and completeness of all information in an applicant’s Form U4.  At a minimum, FINRA specifies this investigation should include a search of public records, such as criminal and civil filings, judgment, liens, bankruptcies, and business affiliations. 

Complying with the new Rule 3110(e) will likely prove to be costly and time consuming to FINRA firms, and may add extend the timeline of hiring decisions.  Searches of national public records for each new hire will require time and resources.  To accommodate firms that would be unable to complete the verification process before filing an applicant’s Form U4, the new rule allows firms 30 days after filing the Form U4 to complete the verification process. 

Financial advisors and other associated persons subjected to firm background checks and investigations should carefully examine their Form U4s to ensure all disclosures are complete and accurate.  The heightened investigations may uncover expunged criminal convictions, and questions may arise as to whether such criminal history should be disclosed on a Form U4.  

The implementation of FINRA’s new Rule 3110(e) may lead to disputes between firms and financial advisors regarding the interpretation of the rule and the information that must be disclosed on a Form U4. Our attorneys have extensive experience representing registered representatives and investment advisors in a variety of U4, U5 and other securities industry matters, including employment disputes. Contact us today for a confidential analysis of your situation.  

 

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