FINRA Proposes to Crack Down on Firm Misconduct

Simms Law, P.C.                  June 14, 2022

The Financial Industry Regulatory Authority (FINRA) recently announced a proposal to impose restrictions on firms with significant misconduct histories. In its announcement, FINRA proposed to label these firms as “restricted firms.” Pursuant to this proposal, restricted firms must deposit funds into restricted accounts. The funds are then used to pay customer arbitration awards. However, this proposal is not without problems. For example, opponents of this plan have argued that a restricted firm fund will make little impact on the large problem of firm misconduct. In addition, FINRA has acknowledged the fact that forcing restricted firms to contribute funds to restricted accounts could have a severe financial impact on some firms. Thus, FINRA has stated that, in order to balance its approach, it will ensure that fund amounts don’t significantly undermine the operational capability and financial stability of each firm.

What Does FINRA Hope To Accomplish With Its Proposal?

FINRA hopes to accomplish several things with its proposal. First, by identifying certain firms as restricted, FINRA hopes to signal to investors that there may be concerns about these firms. This label alerts investors and the marketplace that these firms should be approached with caution because of their past violations. Ideally, this will force these firms to improve their conduct while protecting investors. Second, by forcing restricted firms to contribute funds to a restricted account, FINRA hopes to increase the cost of regulatory misconduct. Under its proposal, a firm will be assigned restricted status if it or its financial professionals have a higher number of violation disclosures than other firms.

Ultimately, this will force firms to either act appropriately or leave the industry, as contributions to the restricted fund and the loss of customers due to poor behavior will ultimately force some firms to close their doors permanently. Finally, FINRA’s proposal addresses the issue of unpaid awards, indicating that it will examine whether a firm has any unpaid awards or pending arbitration claims involving customers when determining the specific amount that it must deposit into its restricted fund.

Fort Lauderdale Financial Advisor Representation

At Simms Law, P.A., we have a reputation in the industry for honesty, integrity, and aggressiveness. One of our primary areas of practice is the representation of financial advisors who’ve been accused of failing to abide by securities laws, rules, and regulations. Our representation of financial advisors covers a wide range of issues, including the expungement of disclosures through FINRA expungement proceedings, compensation issues, raiding-related claims, and matters pertaining to the successful transition from one firm to another. If you are a financial advisor and need aggressive legal representation in Fort Lauderdale or elsewhere in Florida, please contact us by phone or through one of the contact forms on our website to schedule a free consultation.