As part of its crackdown on rogue brokers, the Financial Industry Regulatory Authority Inc. has ranked all 634,403 registered reps it regulates and is targeting those who it believes pose the biggest threat to investors, a Finra executive said Monday.
Susan Axelrod, Finra's executive vice president for regulatory operations, said the rankings are based on factors such as prior regulatory disclosures, disciplinary actions, and their employment history.
Earlier this year, Finra established a special exam unit dedicated to high-risk brokers. That operation has conducted "several hundred examinations focused on these individuals," Ms. Axelrod said at a
National Society of Compliance Professionals conference in Washington.
"We'll take in information. We'll go to the branch. We'll do interviews. You'll continue to see more of that in 2018," she said.
Finra is trying to ensure that it's spending resources in the most effective way to crack down on malfeasance, Ms. Axelrod said, rather than spending too much time and money reviewing firms that follow securities law and industry rules.
"Our goal is to make sure investors are protected every day," she said. "We need to focus our exam work and our surveillance work on individuals that pose the greatest risk to customers."
The moderator of the panel on which Ms. Axelrod appeared, Norm Ashkenas, senior vice president and chief compliance officer at Fidelity Brokerage Services, asked Ms. Axelrod if Finra would publicly identify the high-risk brokers it is zeroing in on.
"Publishing a list with people's names, where we haven't proven any violations, there would be challenges to that," Ms. Axelrod said. "That being said, if we are showing up at a firm asking for information on a particular registered person and coming on site to interview that person, that's a clue they're on our high-risk broker list."
Such an inquiry would focus on the products that the registered representative is selling, to whom they are selling those products and whether he or she is violating securities laws or Finra rules.
In July, the Finra board gave its
approval for a rulemaking process that would allow the regulator to put more pressure on firms that hire brokers with checkered regulatory histories. The board also addressed high-risk brokers
at its May meeting. The next step is for the regulator to release specific proposals for comment. It isn't clear when that will occur.
"We're working on a regulatory notice that's going to lay out a number of regulatory proposals in this high-risk broker area," Finra chief legal officer Robert Colby said at the NSCP conference.
Seniors often can be prey for rogue brokers. Ms. Axelrod touted Finra's securities helpline for seniors as the "greatest source of information on a real-time basis."
Launched in 2015, the initiative has fielded 11,000 calls and resulted in the return of $5 million to investors.
