The Financial Industry Regulatory Authority wants broker-dealers to be a lot more specific on the reasons for dismissing an employee in their reports to the regulator.
In Regulatory Notice 10-39 issued on September 8, the self-regulatory agency for broker dealers, reminded firms of their obligations to include details on the circumstances of an employee’s termination including identifying the policy the employee violated. That means that broker dealers cannot simply say that the employee’s registration with FINRA was terminated because the person violated “firm policy.”
Just as important, the firm must also disclose that it fired an employee for “misconduct,” even if the firm was not the one making the allegations against the employee and even if the misconduct did not involve a customer of the firm .
“Question 7F does not specify or require that the terminating firm be the source of those allegations,” wrote FINRA. “For example, if an affiliate of a firm employing a registered person discharges the registered person after making allegations of fraud against that person and the firm thereafter discharges the person, the firm would need to provide an affirmative answer to the appropriate part of Question 7F and indicate that it was discharging the person after allegations of fraud had been made against him or her.”
In the regulatory notice, FINRA went on to say that the questions it asks about specific types of misconduct do not require the misconduct to be related to a customer of the firm for the brokerage firm for the brokerage firm to include the information. And broker-dealers should not narrowly interpret the phrase “investment-related” when reporting information on misconduct to only refer to securities. The scope of the term, according to FINRA should also include commodities, banking, insurance or real-estate.
FINRA requires brokers to file U5 (Uniform Termination Notice for Securities Industry Registration) forms with the regulator no later than 30 days after terminating an employee’s registration with FINRA. The agency uses the information to help identify and sanction individuals who violate its rules and firms use the information to help them make decisions on whether to hire an employee. Investors can also use the information to decide whether or not to do business with a brokerage employee.
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