The Finra board of governors is looking to crack down even more on bad actors.
On Tuesday, the board authorized Finra staff to solicit comments on proposed changes to membership application rules. The changes would require brokerage firms to consult with Finra before a problem broker could be hired or become an owner or principal of a firm.
The application process requires approval for some types of expansions and mergers. Some firms might normally be exempt from the process, but under the proposal, if a problem broker became an owner or employee, a firm would lose that exemption.
“Many firms have encouraged Finra to be more aggressive in going after bad actors,” said Finra chief executive Robert Cook in a video on the board’s action released Tuesday, referring to his recent listening tour of member firms.
How a problem rep with certain “risk events” would be defined wasn’t spelled out in a description of the board’s action.
But if a firm wanted to bring on such a broker, “Finra staff would review the submission and determine whether the member is required to file a continuing membership application,” Finra said in an update.
A similar restriction would be proposed for firms that haven’t paid out arbitration awards to clients, or whose brokers haven’t paid. Finra could also deny a new membership application if the applicant or its associated persons are subject to pending arbitration claims, and could deny an expansion or asset transfer if a firm or rep “has a substantial level of pending arbitration claims, an unpaid arbitration award or an unpaid settlement,” Finra said.