FINRA Enhances Disclosure Review Process

As I’m sure you already know from reading our previous blogs on the subject, FINRA Rule 3110(e) (Responsibility of Member to Investigate Applicants for Registration) requires that member firms must “ascertain by investigation the good character, business reputation, qualifications, and experience of an applicant” prior to submitting a Form U4 and requesting to associate and register such an applicant with the firm. However, as recently announced, FINRA has made enhancements to its disclosure review process that will make this verification easier than ever.  Such enhancements will allow member firms to rely upon FINRA’s verification process for purposes of compliance with the requirement to conduct a search of public records relating to bankruptcies, judgments and liens.

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FINRA Rule 3110(e): Form U4 Verification Process

In our August 31 post about FINRA Rule 3110(e) (Supervision: Responsibility of Member to Investigate Applicants for Registration), we discussed the necessity of background checks and the expected depth and breadth of the investigation process. Rule 3110(e) also requires that FINRA member firms adopt written procedures to verify the accuracy and completeness of the information in an applicant’s Form U4. Read More…

FINRA Rule 3110: Background Checks

FINRA Rule 3110(e) (Supervision: Responsibility of Member Firms to Investigate Applicants for Registration) dictates that member firms must “ascertain by investigation the good character, business reputation, qualifications, and experience of an applicant”. In other words, member firms are required to run thorough background checks on all sponsored applicants for registration.

Among other things, the information gained from a thorough investigation is used to update the applicant’s Form U4, Read More…

FINRA Rule 3110: Supervision

Last month, Stephens Inc. was censured by FINRA and fined $900,000 for failing to properly supervise “flash” emails sent by its research department.  According to FINRA Rule 3110, firms must have supervisory procedures established which include procedures for the review of incoming and outgoing written (including electronic) correspondence and internal communications relating to the member’s investment banking or securities business. The issue began when Stephens Inc.’s research analysts sent flash emails to the sales and trading personnel.  Although the research analysts sent the flash emails internally, the lack of supervision created the risk that material non-public information may have been included in the emails which could lead to misuse by the sales and trading personnel.

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