Last year, in an unlikely collaboration, Senators Elizabeth Warren, a Democrat from Massachusetts, and Tom Cotton, a Republican from Arkansas, sent FINRA a letter demanding the regulator do more to stop broker misconduct and to prevent those with troubled histories from concentrating in the same firms.
“FINRA is not doing nearly enough to fulfill its investor protection mission,” the letter read.
The regulator responded with a letter on June 15 of last year saying that it closely oversees firms “to determine whether they present a heightened risk to investors.”
From 2013 to mid-2016, the regulator told the senators, it identified 279 “high-risk” brokers. After identifying them, the regulator permanently banned 238 brokers from the industry for subsequent violations.
FINRA oversees about 3,800 brokerages and 630,000 brokers.
In interviews with Reuters, Axelrod pointed to firms that FINRA expelled. The regulator shut down about 130 firms in the six years ending in January 2017, with many cited for securities fraud, misuse of funds or falsifying records.
But the Reuters analysis of FINRA data found that the regulator did not expel the firm’s chief executive in 58 percent of those cases, leaving him or her free to join other brokerages. The brokers at those banned firms typically were also able to continue working in the industry.
Axelrod said that FINRA gives extra scrutiny to former executives of expelled firms after they show up with new jobs at other firms.
'Overwhelming Evidence'
Regulators in at least one state think more can be done to crack down on brokers and brokerages with track records of violations.