The SEC Approves new Designation on FINRA’s BrokerCheck of “Restricted Firm”
According to reports this week, the Securities and Exchange Commission gave approval to the Financial Industry Regulatory Authority (FINRA) to flag brokerage firms for bad behavior as a “restricted firm.”
FINRA’s BrokerCheck tool will soon provide investors and other interested parties information on whether or not firms are behaving badly. FINRA will implement the new rule by displaying an alert on BrokerCheck if it has flagged a brokerage as “restricted firm.” To learn more about BrokerCheck see: FINRA BrokerCheck – Easy way to Check your Broker or Financial Advisor
According to the SEC’s order, the “restricted firm” designation is based on the number of disclosures that the broker-dealer and its representatives have, including disciplinary events and investor complaints.
The “restricted firm” flag will reportedly appear prominently along with a link on a firm’s BrokerCheck page that will send visitors to a page noting that the firm is restricted because FINRA claims it to be “a high degree of risk to the investing public,” according to the SEC.
The SEC reportedly believes that this “restricted firm” designation and its publication on BrokerCheck, should incentivize member firms “to change behaviors and activities,” to avoid designation as a “Restricted Firm.”
According to FINRA, the regulator will provide an effective date in an upcoming regulatory notice.
FINRA will also require the subject brokerage to deposit funds “to protect investors and the public interest” because of their significant history of misconduct, according to the order.
The SEC authorized FINRA in 2021 to devise its list of restricted firms and impose new obligations, including the segregated pool of funds, as part of FINRA Rule 4111, which took effect in January 2022.
FINRA reportedly gave potentially restricted firms an opportunity to clear out the problem brokers in order to avoid the designation.
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Tags: Advice rule, BrokerCheck, FINRA Broker Check, restricted firm, SEC, Securities Attorney Last modified: February 8, 2023