Starting July 1, 2015, FINRA-member firms will have to conduct more rigorous background checks for new hires in compliance with FINRA Rule 3110 that will come into effect on that date. This comes after a recent Wall Street Journal discovery that FINRA’s BrokerCheck does not make public all regulatory red flags it has about brokers.
FINRA-member firms must not only have written supervisory procedures to verify that the information contained on an individual’s Form U4 is accurate and complete but, within 30 days of filing the Form U4 for the newly hired individual, the firms must conduct a search of “reasonably available public records” for the information normally contained in the Form U4.
A Form U4 contains information not only about an individual’s past employment, but also about his or her disclosure history, including bankruptcy, judgments and liens, criminal history, and civil litigation.
Rule 3110 does permit the use of third-party service providers to handle these onerous background checks. It is unclear at this juncture, though, what the implications would be to a FINRA-member firm who relies upon such a third-party should that background check ultimately turn out to be faulty.
For questions or more information on FINRA regulations, please contact Kevin S. Koplin.