FINRA proposes new obligations for investment firms


The Financial Industry Regulatory Authority (FINRA) proposed a new rule earlier this month to restrict the actions of investment firms with a problematic history. Open for comment until July 1, Rule 4111’s “Restricted Firm Obligations” aims to protect investors from activities by rogue brokers and firms that turn a blind eye to supervising them.

Brokerage firms previously cited for regulatory issues related failure to supervise or that employ a high number of repeat offenders – i.e. people deemed “red flags” by FINRA – could face new regulatory requirements if this rule is passed.

Proposed rule targets a small number of firms

FINRA’s report on proposed Rule 4111 explains how the organization “identified certain firms that have a concentration of individuals with a history of misconduct.” The report describes firms that consistently hire brokers and other employees with checkered pasts, as well as organizations that tend to prey on “vulnerable customers.” In total, FINRA found 35 firms of varying sizes that engage in activities contrary to securities laws.

Problematic firms may face heightened regulatory requirements

Under the proposed rule, the “Restricted Firms” would have to maintain deposits of either cash or qualified securities that could not be withdrawn again unless they obtained written consent from FINRA. According to FINRA’s report, these restricted deposits aim to curb risky behavior by limiting a firm’s financial resources. FINRA would annually evaluate the Restricted Firms to determine whether each organization on the list should continue to follow the obligations of Rule 4111.

Investors have a right to know how brokers are handling their funds, and which brokers pose a risk of abuse. If a securities broker has withheld or misrepresented material information about your investments, an experienced securities lawyer can help you decide what to do next.