The Financial Industry Regulatory Authority will conduct searches of legal records to see whether registered reps who have moved to a new broker/dealer failed to disclose any previous bankruptcies, judgments or liens. The move is meant to help firms comply with a 2015 rule requiring them to check individual brokers for previous bankruptcies, judgments and liens to ensure the information on the reps’ Form U4 was accurate.
“What we’ve heard is, especially for smaller firms, that presents a significant challenge and cost, and that some of the providers of those sorts of services have been reducing the scope of their offerings,” said FINRA President and CEO Robert Cook, speaking at the regulator’s annual conference Monday morning.
FINRA released a regulatory notice on the topic last Friday, stating that the change will start July 9. The agency will conduct a search of public records within 15 days of a new U4 filing and provide firms with the results if the information is different from what was filed.
“There’s some cost to us in doing this and as a result, not only will small firms save money in terms of buying those sorts of services, but our late fees will go down—we estimate by several million dollars,” Cook said. “Our CFO was like, ‘Gee, Robert do we usually spend a little money to lose a lot of money?’ No, but this is not the type of revenue we want to have.”
“If we can help ensure that we provide this services to our firms and giving investors quicker disclosure, that seems like a good thing.”