Last year, a FINRA official told Reuters, the regulator identified 90 firms as posing the highest risk to investors and flagged them internally for higher scrutiny. But FINRA declined to name the firms publicly or to release statistics showing the concentration of brokers with a history of FINRA flags within each firm.
In an interview with Reuters, FINRA’s executive vice president of regulatory operations, Susan Axelrod, declined to comment on any specific firm identified by Reuters. She would not directly address why the regulator will not publicly name the firms it identified as high-risk.
“Let’s just say those are not new names to us,” she said of the firms identified by Reuters.
FINRA Chief Executive Robert Cook, however, addressed its unwillingness to name names in a speech on Monday morning in Washington at Georgetown University, according to prepared remarks released by FINRA.
“We must consider fairness and due process,” Cook said. “FINRA does not possess a crystal ball - someone who we may identify as a high-risk broker for oversight purposes is not necessarily a bad actor.”
The regulator has created a dedicated unit focused on those high-risk firms, Axelrod told Reuters, but she declined to discuss its budget, staffing or specific duties. Cook on Monday said the unit included an unstated number of “examiners and managers” with experience dealing with high-risk brokers.
FINRA makes data on individual brokers’ backgrounds available through its Brokercheck website, which Axelrod said provides “unparalleled transparency” to investors. That site allows the public to search histories of complaints and sanctions against individual brokers – but only one at a time.
The regulator will not release the data in bulk form, such as a database, that would enable researchers to identify firms with high concentrations of brokers with a history of FINRA flags.
Reuters analyzed the FINRA data after receiving it from researchers at Columbia University Law School DataLab, who wrote computer code to extract it from the regulator’s website.
Reuters sought comment from officials at all 48 firms. Some responded that many of the FINRA-mandated disclosures do not necessarily equate to misconduct by brokers, such as when a firm pays a client to settle a complaint without admitting wrongdoing.