FINRA Financial Industry Regulatory Authority
FINRA is the single largest independent regulatory body for securities firms operating in the United States. FINRA’s major task is to protect investors by ensuring that the U.S. securities industry operates in an honest and fair manner, FINRA also deals with thousands of smaller issues on a regular basis in order to make this happen.
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March 2015 Background & Discussion Background Checks A critical part of the registration process in the securities industry is the background investigation of applicants for registration and the timely and accurate reporting of information to the Central Registration Depository (CRD®) system via the Form U4. For instance, FINRA reviews the information disclosed on the Form U4 to determine whether an applicant is subject to a statutory disqualification or whether the applicant may present a regulatory risk for the firm and customers. Further, firms use the information reported to the CRD system to determine whether an applicant is subject to a statutory disqualification or a candidate for special supervision. Firms also use the information reported to the CRD system to check the backgrounds of applicants they are considering sponsoring for registration. In addition, the information that FINRA releases to the public through BrokerCheck, which helps investors make informed choices about the individuals and firms with which they conduct business, is derived from the CRD system. FINRA Rule 3110(e), which is based on NASD Rule 3010(e) and NYSE Rule 345.11, sets forth a member’s obligation to conduct a background check on applicants it intends to sponsor for registration.7 Investigation Process FINRA Rule 3110(e) requires that each member firm ascertain by investigation the good character, business reputation, qualifications and experience of an applicant before the firm applies to register that applicant with FINRA and before making a representation to that effect on the application for registration. This is a principle-based requirement, and it is substantially similar to the requirement under NASD Rule 3010(e). Firms are required to complete the investigation process prior to filing the Form U4. Further, FINRA does not place any limits on the scope of such a background investigation—a firm must obtain all the necessary information to make an evaluation.8 Firms should consider all available information gathered in the pre-registration process for this purpose, including, but not limited to, Form U4 and Form U5 (Uniform Termination Notice for Securities Industry Registration) responses, authorized searches of the CRD system, fingerprint results obtained under SEA Rule 17f-2 and communications with previous employers. Firms also may wish to consider private background checks, credit reports and reference letters for this purpose. However, firms must ensure that such background investigations are conducted in accordance with all applicable laws, rules and regulations, including federal and state requirements, and that all necessary approvals, consents and authorizations have been obtained.News Release
FINRA Fines Ameriprise Financial Services, Inc. $850,000 for Failing to Supervise the Transmittal of Funds From Customer Brokerage Accounts
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