Jan 2 Wall Street brokerages that hire stockbrokers who have a track record of misconduct should expect to show examiners how they will curb future wrongdoing, the industry's watchdog said on Thursday in an overview of issues it will review in 2014.
The Financial Industry Regulatory Authority (FINRA) will review the process that firms use to research problem brokers before hiring them, FINRA said. The industry-funded watchdog also wants to know whether the firms take extra measures to supervise the brokers to prevent future misdeeds, such as sales abuses involving client accounts.
FINRA, which routinely examines the industry's nearly 4,200 securities firms to gauge their compliance with securities industry rules, published its annual list of "examination priorities" on Thursday. The regulator also oversees the industry's 636,200 brokers.
Only a "small number" of brokers have engage in a pattern of misbehavior that could harm investors, FINRA said.
The regulator is also honing in on potential risks posed by brokers who worked at firms that were expelled from the securities industry, FINRA said. Many of the brokers are not barred because of their firms' wrongdoing and find work at other firms. They may, however, bring "unethical or illegal practices" with them, FINRA said. The regulator is identifying and monitoring the firms and individuals, it said.
FINRA's heightened scrutiny of problem brokers during its upcoming examinations follows a program it launched in 2013 to fast-track investigations and disciplinary cases involving risky brokers who may pose the greatest threats to investors.