logo 2

The Practice Of Law Is A Relationship Business

Brokerage firms take note, the SEC just passed a new FINRA rule

by | Aug 25, 2021 | Commercial Litigation

The financial industry is always evolving, and the rules that govern brokerage firms and investment strategies often change in an attempt to keep up. These rules can help to better ensure everyone works in a way that benefits investors while staying within the confines of the law. In a recent example of how this area is always growing to respond to these changes, the Securities Exchange Commission (SEC) just approved a Financial Industry Regulatory Authority (FINRA) proposed rule.

What is this rule?

FINRA’s new rule focuses on brokerage firms it believes are at a higher risk of causing harm to investors. The new rule labels these firms as “restricted” brokerage firms. It will require certain brokerage firms to put money into an account controlled by FINRA. The brokerage firm regulator would then use these funds towards a variety of purposes, such as arbitration awards.

What does the rule define as a “restricted” brokerage firm?

The “restricted firms” are those with a history of misconduct. It includes those who have been the subject of regulatory action, customer arbitration, litigation, or are more likely than their peers to cause events of harm to their investors.

What will this mean for qualifying firms?

Those FINRA deems as restricted firms will, as noted above, need to provide funds within FINRA’s segregated account. FINRA notes that the new rule can also result in the following:

  • Additional supervision.
  • More restrictions or conditions.
  • Required disclosure.

The rule is scheduled to go into effect in 180 days.

What does this mean for my firm?

The recent change is a reminder of the importance of regular internal audits to better ensure the firm is in full compliance with applicable regulations.

Commercial LitigationBrokerage firms take note, the SEC just passed a new FINRA rule
/* */