The Financial Industry Regulatory Authority is setting up a team made up of six members to look at stockbrokers with long records of investor complaints and violations, as well as those that engage in “cockroaching”-which involves brokers moving among beleaguered firms. The crack down comes amidst pressure from lawmakers on Capitol Hill.
According to an analysis of state securities records by The Wall Street Journal last year, between 2005 and 2012 there were over 5,000 licensed securities brokers who had worked with at least or more firms that had been expelled by FINRA. The analysis also revealed that there were brokers who, even in the wake of being targeted by numerous arbitration claims or having declared bankruptcy more than once, have managed to keep working in the industry.
FINRA announced this new initiative this week in a letter to approximately 4,180 broker-dealers that are registered with the SRO. It said it would use the Broker Migration model, a computerized analytic system, to look at brokers who have gone from an expelled brokerage firm to other firms.
These latest actions are a widening of FINRA’s efforts to better police brokerage firm that retain rogue brokers. Already, it has barred 22 brokers for rule violations in these attempts. About 50% of these individuals were identified via investor complaints and tips, arbitration claims, and regulatory-disclosure forms.
Other enforcement priorities for FINRA in 2014 include mutual funds that invest in frontier markets, like Vietnam and Nigeria, that can be risky, have less liquidity, as well as lower investor protection standards than what is required in the US. The SRO also plans to crack down on trading strategies that are computer driven and take a closer look at market structure issues.
FINRA market regulation officer Tim Gira said that the regulator will also publish best practices for alternative trading systems, such as dark pools. He said that after examining off-exchange trading venues for a year, the SRO discovered that the operation of certain ATSs didn’t always align with the way they were described and sometimes “trading from a proprietary basis” differed from what was disclosed.
Meantime, FINRA remains worried about structured products that are interest-rate sensitive, including municipal securities, as well as anti-money laundering, microcap securities fraud, and cyber security. Also still on its radar over marketing and sale to (as well as suitability for investors): complex structured products, private real estate investment trusts, bond funds, mortgage-backed securities, bond ETFs, emerging market debt, municipal bonds, baby bonds, and private placement securities. FINRA says it will continue to watch out for senior financial fraud, microcap fraud, insider trading, and algorithmic trading abuses.
Our securities fraud lawyers work with investors throughout the United States, as well as investors abroad with claims against a firm based in this country. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.
Finra to Crack Down on Brokers With High Number of Complaints, The Wall Street Journal, January 2, 2014
From FINRA, January 2, 2014
Finra booted 16 rogue brokers this year, targeted 26 more for ‘action’, Investment News, November 22, 2013
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