Firms must do more to supervise broker-dealers with tainted records

Firms must do more to supervise broker-dealers with tainted records

Firms must do more to supervise broker-dealers with tainted records

Broker-dealer firms need to do more to ensure the correct supervision of individuals who have done wrong in the past.

The North American Securities Administrators Association (NASAA) has reported its findings from an investigation coordinated across 30 jurisdictions, into how firms of varying sizes are managing ‘heightened supervision’.

“Broker misconduct is a recurring threat for investors,” said Michael Pieciak, NASAA President and Vermont Commissioner of Financial Regulation. “Registered representatives with prior records of misconduct are three times more likely to be repeat offenders than their peers. Heightened supervision of risk-prone registered representatives is a crucial obligation of broker-dealer firms.”

The findings
NASAA members conducted 165 examinations of 121 broker-dealers including those from wirehouse, independent, and introducing firms. They found that 9 had no policies or procedures related to heightened supervision, 34 had no criteria for the assessment of whether heightened supervision would be appropriate for new hires, and an equal number had no criteria for currently associated representatives. 

Of the firms that did have policies for heightened supervision, 49% had no policies and procedures regarding how a registered representative could be removed from heightened supervision.

Less than 25% of the examined firms maintained supervisors on site who were responsible for enforcing heightened supervision plans and about 20% failed to enforce the procedures they had developed.

“Cumulatively, these numbers indicate that there is much work to be done,” said NASAA President-elect Frank Borger-Gilligan, who oversaw the coordinated exams as chair of the Broker-Dealer Section. “NASAA encourages all firms to review their procedures to ensure they are acting in compliance and to develop heightened supervision procedures, including the removal of individuals from heightened supervision, where they may be lacking.”


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