FINRA fined a large bank-affiliated broker-dealer $1.25 Million for failing to conduct adequate background checks on over 8,000 associated persons over an 8-year period. The broker-dealer relied on its bank affiliate to conduct screening of its non-registered associated persons but the bank only screened for bank disqualifying criteria, not the broader categories of disqualification pursuant to Section 3(a)(39) of the Exchange Act and FINRA rules. Also, the firm completely failed to fingerprint over 2000 employees prior to employment. Four employees were retained despite statutory disqualifications. FINRA’s EVP of Enforcement warned, “Firms have a clear responsibility to appropriately screen all employees for past criminal or regulatory events that can disqualify individuals from associating with member firms, even in a non-registered capacity.”
OUR TAKE: FINRA has previously warned that it would review how firms screen for brokers with disciplinary records. The regulator wants to put pressure on the industry to drive out the bad brokers.