![]() ![]() The new rule will require firms with significant records of wrongdoing-also referred to as “Restricted Firms”-to contribute cash or qualified securities to a separate, FINRA-controlled bank account. ![]() The studies also indicated that firms associated with disciplinary actions or bad actors in the past were likely to engage in future bad practices as well. In an effort to stem the rising tide of improper conduct amongst repeat offender firms, FINRA’s new Rule 4111 is set to “impose new obligations on broker-dealers with significantly higher levels of risk-related disclosures (including, notably, sales-practice related disclosure events) than other similarly sized peers based on numeric, threshold-based criteria.” In its proposal, FINRA cited study findings showing that certain brokerage firms were routinely employing brokers with histories of misconduct. Creating a heightened scrutiny standard in light of historical egregious examples of broker bad behavior, fraud, and client harm, the SEC considers brokerages with a track record of misconduct and/or a high concentration of bad actors on their payroll to be a higher risk to investors than their more compliant counterparts. FINRA, the self-regulator that oversees all broker-dealers in the U.S., is tasked with protecting investor interests as well as the overall integrity of the securities market. ![]() On July 30, 2021, the Securities and Exchange Commission (SEC) approved the Financial Industry Regulatory Authority’s (FINRA) rule proposal aimed at cracking down on brokerages with a history of misconduct. ![]()
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