FINRA Board Approves Amendment to Supervision Rule Requiring Firms to Conduct Background Checks on Registration Applicants
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that its Board of Governors approved amendments to FINRA's supervision rule that would expand the obligations of firms to check the background of applicants for registration, including first-time applications as well as transfers, to verify the accuracy and completeness of the information contained in an applicant's Form U4. Firms would also be required to adopt written procedures in this area that include searching public records.
The Form U4 is the Uniform Application for Securities Industry Registration or Transfer used by FINRA, other self-regulatory organizations (SROs) and states to elicit employment background, disciplinary and other information to register individuals with appropriate SRO(s) and/or jurisdiction(s).
Separately, FINRA also plans to perform an initial search of public financial records for all registered representatives. Additionally, FINRA will conduct a search of publicly available criminal records for all registered individuals who have not been fingerprinted within the last five years. Once these searches are completed, FINRA will conduct periodic reviews of public records to ascertain the accuracy and completeness of the information available to investors, regulators and firms. These efforts also better position FINRA to assess firm and registered individual compliance with reporting requirements.
FINRA is also considering whether additional data from the CRD system used by regulators should be included in BrokerCheck. FINRA's Chief Economist has initiated a study to see if there is a meaningful relationship between that data – which includes failed examinations – and broker misconduct.
Richard Ketchum, FINRA Chairman and Chief Executive Officer, said, "These are important initiatives to improve the accuracy and totality of details reported on a registered individual's Form U4. FINRA would require firms to use publicly available records to verify that information such as criminal and bankruptcy records, civil litigations, judgments and liens are properly reported upon a registered individual's application. FINRA encourages every investor to use BrokerCheck to research the background of individuals they are trusting to invest their money."
The amendments to the supervision rule will be submitted to the Securities and Exchange Commission for review and approval.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.