Finra created its high-risk broker program in 2014, but continues to refine and enhance the methodology it uses to flag high-risk brokers, Finra President Robert W. Cook said in a speech last year. “We recently centralized the identification and monitoring of high-risk brokers in a new, dedicated unit … that should enable us to improve our identification efforts and double the number of examinations we conduct in the program this year,” Cook said. “Key risks that we focus on include sales practices, fraud and deception and the protection of client assets.”
These are some of the factors Finra considers when classifying brokers as high-risk:
• Association with firms with a history of disciplinary action.
• Duration of association with problematic firms.
• Migration from one “bad” firm to another.
• Licensing exam history and number of examinations failed or expired.
• Investor harm disclosures.
• Complaints and arbitration.
• Prior reviews by Finra.
Finra declined to disclose the number of high-risk brokers it has identified as a result of its heightened scrutiny.