New FINRA rule will label firms that have history of misconduct


The financial industry is rife terrain for broker misconduct. In an industry where people are judged on their profits, it is not uncommon for investors to be victimized by various forms of illegal activity in the financial sector.

FINRA oversees the securities business and sanctions individuals and firms who violate the law.

Still, many brokers are repeat offenders, and they tend to hire people who will do the same things in the interest of profit. This happens even if they are aware it places unwitting investors’ financial health at risk. Knowing the law and how FINRA handles these behaviors is important.

FINRA plans to restrict entire firms with a history of wrongdoing

A new FINRA rule approved in July by the SEC will label as “restricted firms” broker-dealers who have committed misconduct in the past and hire a significant portion of brokers who have also committed misconduct. It will go into effect six months after a regulatory notice is issued by FINRA. That is expected in the coming weeks.

Firms that are restricted will be able to formulate a challenge to try and have it removed. It can also cull its workforce to keep from being labeled as a restricted firm.

While this is not believed to be a widespread problem, broker misconduct is an ongoing issue that must be addressed. Only 80 firms are set to be investigated. That comprises 2% of all firms in the entire industry. 91% will be smaller firms.

Those that have fewer than 150 employees are the primary targets. Insiders view this step as benefiting the public. Broker-dealers labeled as restricted will need to deal with the consequences such as an unfavorable view in the industry and a reluctance from investors to deal with them.

Since a common strategy for unscrupulous firms is closing the business to avoid paying victims after a lawsuit, this designation would require that money be put aside to have a fund to pay litigants who win their case.

Those who have been victimized have rights

In a world where profit often takes precedence, people unaware of the intricacies of securities and investing are frequently taken advantage of. A fundamental problem with broker misconduct is that it can be hard to detect until it is too late.

This new FINRA designation, along with other rules implemented to protect consumers, is beneficial, but there are always cracks and people can be harmed. Whether it is unsuitable investment recommendations, a lack of supervision, brokers who have a history of misconduct and go unchecked, or other illegal and unethical behaviors, it is imperative to have professional help.