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broker-dealer

The Financial Services Industry and Its Regulatory Landscape: 2021

Every year, hundreds of financial advisors and brokers across the country are convicted of a host of bad acts, which include conducting Ponzi schemes, misappropriating client funds and forging customer signatures. 2021 was no exception. Here are ten recent examples of how the legal system as well as regulators in the financial services industry, respond to allegations of fraud, misappropriation, improper hiring practices, and criminal activity.

FINRA Targets High-Risk Brokerage Firms With New Rule

For several years, the Financial Industry Regulatory Authority (FINRA) has sought to increase oversight of brokers who have a history of misconduct as well as the firms that hire these brokers. In an effort to disincentivize the recruitment of high-risk brokers, the Securities and Exchange Commission (SEC) recently approved FINRA’s proposed Rule 4111, which subjects “restricted firms” to additional capital obligations and hiring restrictions. Specifically, FINRA Rule 4111 targets brokerage firms that have exceeded thresholds of risk-related or investor-harming disclosures compared to similarly sized peers. The new rule, which will go into effect in 2022, is designed to provide FINRA with greater authority to proactively address the risks posed to investors by rogue brokerage firms.

Coronavirus, Compliance, and the Brokerage Industry

COVID-19 has ushered in a new era for the brokerage industry as financial advisors and professionals across the world have been exiled from regional offices in favor of remote work. Numerous financial advisors may continue working remotely whether due to a novel sense of autonomy, elimination of a commute, or perceived increase in productivity. However, the remote-work era has introduced a plethora of compliance-related issues throughout the brokerage industry. Brokers working remotely possess additional independence to determine when to work and how to communicate with clients, which heightens compliance risks because firms are not able to monitor employees as stringently as they were before COVID-19. Federal regulators, including the Financial Industry Regulatory Authority (FINRA), are responding to newfound compliance risks by issuing updated guidance and investigating potential violations throughout the brokerage industry.

FINRA Releases Regulatory Notice Announcing 529 Plan Share Class Initiative

On January 28, 2019 the Financial Industry Regulatory Authority (FINRA) released Regulatory Notice 19-04 announcing a 529 Plan Share Class Initiative encouraging firms to self-report potential violations. Broker-Dealers are encouraged to consider self-reporting under the initiative if they have identified specified failures in connection with 529 plan recommendations, and have the ability to assess the impact of the failures. Firms have until April 1st to notify FINRA in writing if it has decided to self-report.