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By Neha Dimri and Suzanne Barlyn
April 24 Wall Street's self-funded regulator
said brokerage firms would have to conduct their own background
checks on new recruits after critics pointed to gaps in
disclosures by some brokers with checkered histories.
Financial Industry Regulatory Authority (FINRA), which has a
database containing information on each registered broker's
employment history, said it also plans to perform an initial
check for financial problems, such as bankruptcies, for all
The watchdog will also conduct a search of publicly
available criminal records of brokers who have not been
fingerprinted within the last five years, it said in a statement
on Thursday. (link.reuters.com/hep78v)
"I'm surprised it's not already required," said Jason Doss,
president of the Public Investors Arbitration Bar Association, a
group of lawyers whose members represent investors in securities
The announcement by FINRA comes at a time when it is facing
heightened scrutiny from legal groups and the media over the
quality of its online disclosure system - BrokerCheck, a free
tool to help investors choose a broker.
FINRA oversees 633,000 stockbrokers. Firms are already
required to fingerprint newly hired brokers, whether they are
first entering the industry or switching jobs.
FINRA sends the fingerprints to the U.S. Justice Department
to check for arrest information in a national criminal database.
But that search does not check for financial problems.
Morgan Stanley and Bank of America's Merrill Lynch
unit already conduct their own criminal and financial
background checks, spokespeople said. The process is typical
among the largest brokerage firms, say compliance professionals.
But after a broker clears those hurdles, firm policies often
rely on the broker to self-disclose events such as tax liens,
bankruptcies and criminal problems, which can occur years after
the initial background checks. Brokers have been fired for not
making those disclosures and then disciplined by FINRA, but not
all are caught.
FINRA's chief economist has also launched a study to see if
it should include additional data on BrokerCheck, such as
details about licensing exams that brokers have failed, it said.
The regulator is looking into whether there is a "meaningful
relationship" between the data and broker misconduct. FINRA's
has expanded the scope of data in its BrokerCheck system several
times in recent years.
The measures by FINRA on Thursday require approval from the
U.S. Securities and Exchange Commission, which oversees the
regulator and changes to its rules.
(Reporting By Neha Dimri in Bangalore; Additional reporting by
Suzanne Barlyn and Sarah N Lynch; Editing by Savio D'Souza)