“Expungements work to frequently remove relevant events from disciplinary records, which is a preliminary metric for identifying the bad firms,” Wojciechowski said.
Finra said its new multistep process includes “numerous features designed to narrowly focus the new obligations on the firms most of concern. Each year’s process will begin with a calculation of which firms meet numeric thresholds based on firm-level and individual-level disclosure events to identify member firms with a significantly higher level of risk-related disclosures as compared to similarly sized peers.”
The process also gives each member firm identified as risky by these numeric criteria some chances in the preliminary stages to affect the outcomes during later steps in the process. One of these is a onetime opportunity by firms to avoid obligations by voluntarily reducing the number of registered reps they employ from firms that have been expelled.
Firms that receive a restricted designation also have the opportunity to explain to Finra’s Member Supervision why the designation and “restricted deposit requirements” were made in error. Firms can also seek to “propose alternatives that would still accomplish Finra’s goal of protecting investors. Firms that receive a restricted designation also have the opportunity to request a hearing before a Finra hearing officer in an expedited proceeding to challenge a department determination,” the agency said.