In the last two years, FINRA has barred more than 730 brokers and associated persons. What was the most prevalent rule violation that resulted in these bars? You might think that the most brokers were barred for violating FINRA’s rule against misuse of customer funds (FINRA Rule 2150) or making fraudulent misrepresentations (Rule 2020) or, perhaps, for excessively trading customer accounts in violation of FINRA’s suitability rule (Rule 2111), but that’s not the case. The answer—FINRA Rule 8210. In fact, in the last two years, more than a third of the enforcement cases that resulted in individuals being barred from the brokerage industry involved violations of Rule 8210.
What is FINRA Rule 8210? Simply put, the rule allows FINRA to request documents, information, and testimony from member firms and their associated persons in connection with an examination or investigation. FINRA is not a government entity, thus we do not have the ability to subpoena information. What we do have is FINRA Rule 8210—a crucial tool that FINRA relies on to protect investors and the market by requiring individuals under FINRA’s jurisdiction to provide information when requested. The penalties for noncompliance are severe—most often a bar from the securities industry if someone under investigation decides to stop cooperating with FINRA.
Perhaps a bar for violating Rule 8210—a seemingly administrative rule—may seem severe. But in reality, the underlying wrongdoing that led to the Rule 8210 request is often quite serious; in many cases, there are suspicions of fraud, conversion of customer funds or other egregious misconduct.
This is typically the untold story behind the story in disciplinary actions citing Rule 8210 violations, as it is rare to find specifics about the underlying misconduct that led to the 8210 request in the case documentation. That is because, often, the respondent refuses to cooperate in an investigation at its earliest stage.
One last point—after FINRA bars a broker for violating Rule 8210 in order to expeditiously remove the broker from the industry and halt ongoing customer harm, that doesn’t mean FINRA’s job is done. FINRA will continue its investigation to: (a) make sure that others were not complicit in the misconduct; (b) seek, whenever possible, to make harmed customers whole; and (c) refer matters outside of FINRA’s jurisdiction to the appropriate federal and state regulators, and to law enforcement.
Now you know the story behind the story of Rule 8210, a critical tool in FINRA’s work on the front lines of investor protection.
Executive Vice President