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Compliance April 24, 2014
FINRA Approves Mandatory Background Checks
The
Financial Industry Regulatory Authority
(FINRA) approved an amendment to its supervision rule that would require
registered firms to conduct background checks on all registration applicants.
Reported by John Manganaro
The supervision rule amendment was approved by the FINRA Board of Governors, but it still must be reviewed and accepted by the Securities and Exchange Commission (SEC) before taking effect. If approved by the SEC, the amendment would expand the obligations of FINRA member firms to check the background of applicants for registration, including first-time applications, as well as transfers, to verify the accuracy and completeness of the information contained in an applicant’s Form U4. Firms would also be required to adopt written procedures in this area that include searching public records.
Separately, FINRA also plans to perform an initial search of public financial records for all registered representatives. Additionally, FINRA will conduct a search of publicly available criminal records for all registered individuals who have not been fingerprinted within the last five years. Once these searches are completed, FINRA will conduct periodic reviews of public records to ascertain the accuracy and completeness of the information available to investors and regulators.
FINRA says these efforts better position its auditors and regulators to assess member firm and registered individual compliance with reporting rules.
FINRA is also considering whether the additional data should be included in BrokerCheck, a free online service through which investors can conduct background checks on FINRA-registered firms and individuals. FINRA’s chief economist has initiated a study to see if there is a meaningful relationship between that data—which includes failed examinations—and broker misconduct.
Richard Ketchum, FINRA chairman and chief executive officer, says the rule change and revamped monitoring effort are important initiatives to improve the accuracy and totality of details reported on a registered individual’s Form U4.
Under the new rules, FINRA would also require firms to use publicly available records to verify that information such as criminal and bankruptcy records, civil litigations, judgments and liens are properly reported upon a registered individual’s application. FINRA encourages every investor to use BrokerCheck to research the background of individuals they are trusting to invest their money.
More information is available at www.finra.org.