FINRA Doesn’t Disclose All Red Flags It Has About Brokers

Dec 29, 2014 | Blog
Partner

A recent in-depth study by the Wall Street Journal revealed what many in the securities industry have known for years: that BrokerCheck, a webpage run by the Financial Industry Regulatory Authority (“FINRA”) that the public can use to review a broker’s disclosure history, does not make public all the regulatory red flags it has about brokers. See here.

Notably, FINRA own rules that dictate how broker-dealers must conduct background checks on potential hires does not include BrokerCheck as a permissible source of information. Instead, FINRA Rule 3010 requires broker-dealers to review all filings through FINRA’s internal database related to a potential hire’s disclosure history. That review will include the regulatory red flags that are not disclosed in BrokerCheck.

Therefore, for investors that are looking to hire a broker who is registered with FINRA, it is advisable to request a copy of that broker’s disclosure history before entrusting them with their funds. As an added layer of security, that record should be provided directly from the compliance department of the broker’s employer.

For more information on broker-dealer compliance and governance, please contact Kevin S. Koplin.