NASD Proposes Heightened Supervision for Brokers with a History of Customer Complaints, Investigations or Regulatory Actions
Washington, DC — NASD today announced that its Board of Governors has approved seeking public comment on proposed rule amendments requiring securities firms to implement special supervisory procedures for brokers with a number of regulatory actions, customer complaints or other incidents that may be cause for concern. The Securities and Exchange Commission (SEC) must approve any final rule change.
The proposed amendments would require:
- Securities firms to adopt heightened supervision plans for registered brokers who, within the last five years, have had three or more customer complaints and arbitrations, three or more regulatory actions or investigations, or two or more terminations or internal firm reviews involving wrongdoing.
- Supervisors to approve the plan in writing and acknowledge responsibility for the execution of the plan.
"Investors face higher risk dealing with a broker who has a long regulatory record," said Robert R. Glauber, Chairman and CEO of NASD. "Securities firms must respond to that risk with enhanced controls. Putting heightened supervision plans in writing and holding supervisors accountable will ensure that these plans are a part of the compliance and management process that is critical to investor protection."
NASD has previously provided guidance to its securities firms stating that they should develop special supervisory plans for individuals with a history of customer complaints, disciplinary actions involving customer harm, or adverse arbitrations. Currently, however, neither federal securities laws nor NASD rules explicitly address firms’ supervisory obligations for individuals who have a history of regulatory actions or customer complaints but who fall short of triggering statutory disqualification provisions.
The proposed amendments would require member firms to formulate a supervision plan designed to address the nature of the potential concerns raised by an individual’s incident history. The amendments would also provide firms with some discretion to not impose a plan on a particular individual if the firm documents a reasonable rationale for the decision.
A review of the 663,000 brokers registered with NASD shows that within the last five years, 2,751 have three or more customer complaints and arbitrations, 216 have been subject to three or more investigations or regulatory actions, and 1,198 have been subject to two or more terminations or internal reviews based on allegations of wrongdoing. This is preliminary data that may include some overlap between categories.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999 or through NASD’s Web site at www.nasd.com.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business—from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web site at www.nasd.com.