The Financial Industry Regulatory Authority Inc. (FINRA) has announced that it will expand its regulatory focus to brokers who have worked with or are associated with high-risk brokers.
In 2017, FINRA created a new division dedicated to keeping track of high-risk or recidivist brokers, working to identify as many as 100 to 200 registered advisors who pose the greatest risk to investors. This year, FINRA has announced that its focus is to also identify brokers or registered reps who are linked to the high-risk individuals. To measure this, FINRA is using both quantitative metrics—such as employment history disclosures like terminations or customer complaints—as well as qualitative considerations.
By looking for associations between representatives and known high-risk advisors, FINRA is trying to preempt future risk-takers who could harm investors.
For FINRA, the issue of high-risk brokers is a high priority. A 2016 study conducted by professors at the University of Chicago and the University of Minnesota found that as much as 20% of the broker workforce has engaged in misconduct and yet only 7% has been disciplined.
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