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FINRA to Crack Down on Financial Firm Misconduct

Simms Law, P.C. June 14, 2022

The Financial Industry Regulatory Authority (FINRA) recently proposed rule changes that would impose new conditions on financial firms with long histories of misconduct. FINRA has filed rule proposals with the U.S. Securities and Exchange Commission that, in addition to other restrictions, would force firms with poor enforcement records to maintain a restricted account that could only be used with the approval of FINRA. 

In order to identify such firms, the new rule proposes using numeric thresholds based on firms’ and individual brokers’ past behaviors to identify those firms and individuals that present a high risk to the public. Those identified would be required to maintain a restricted deposit account.

FINRA’s proposal is part of an ongoing effort to address the risks posed by firms and brokers with an extensive history of misconduct. In its rule filing, it was noted that research has found that some firms routinely employ brokers who engage in misconduct and that such behavior can be predictive of future conduct. Thus, representatives from FINRA have stated that the new rule represents the first line of defense against broker and firm misconduct. FINRA’s proposal also aims to establish an expedited review process for firms facing restricted account requirements.

Under FINRA’s current system, FINRA can’t mandate that firms take remedial steps without first bringing enforcement proceedings. Repeat offenders take advantage of this limitation by continuing to exploit investors until enforcement action is taken. However, such proceedings can take a long time to initiate, prosecute, and conclude, leaving offenders free to harm customers and investors in the interim. In addition, repeat offenders often fight these cases rather than settle them, drawing the process out even longer.  

In addition, FINRA’s traditional enforcement process often leaves investors exposed. Under the current system, after a firm has exhausted its appeals, it can withdraw its FINRA membership and shift its business to another member or other type of financial firm. This limits FINRA’s jurisdiction and allows the unscrupulous firm to avoid the sanction, which can deprive customers of restitution. 

Although the current system contains loopholes that are often taken advantage of by unethical firms and brokers, FINRA is hopeful that its proposed rule will address these weaknesses and provide much-needed protection to customers. 

Contact An Investor Representation Attorney 

If you’ve suffered financial losses due to the actions or inactions of your financial advisor, you should contact an experienced investor representation attorney as soon as possible. At Simms Law, P.A., we represent investors in actions against financial advisors and other investment professionals. Whether you are a victim of financial fraud or you believe your financial advisor failed to take your best interests into account when acting as your fiduciary, we can help you obtain the compensation you deserve. Please contact us today to schedule a free consultation with our talented investor representation attorney.