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Securities Compliance Sentinel Analysis of cutting-edge securities industry issues

Why Should You Care About FINRA’s Proposed Amendment To Rule 8313

Posted in Broker-Dealer Regulation, Compliance and Supervision, FINRA Compliance, FINRA Enforcement
pointing.jpgFINRA recently proposed amending Rule 8313 regarding the public release of disciplinary complaints and decisions.  For anyone conscious through the financial crisis commencing in 2008, this proposal should come as no shock.  Regulators are becoming more and more all about public disclosures.
 
FINRA has proposed, among other things, to allow for the public release of unredacted disciplinary complaints or decisions, subject to some limitations.  The rationale for this proposed change is simple.  Provide the investing public with greater access to information to make more informed decisions and, at the same time, deter and prevent future misconduct.
 
Providing potential investors with more information to make more informed decisions is certainly laudable.  But will disclosure of this information really deter anything?
 
In my experience defending brokers and investment advisors, the deterrent function of this change is not likely to be all that.  The threat of public disclosure if caught will not be much of a deterrent to a person who starts with bad motives.  A bad broker is just that.
 
So what are all of the “honest” brokers and registered representatives supposed to do.  For one, if you are honest and run a clean operation, this proposal should mean very little to you.
 
The critical thing that all firms must promote is an overriding corporate culture of compliance.  By having, promoting and enforcing such a culture, bad brokers are likely to go elsewhere, and your name will be out of these new public disclosures.  If you do not live by a culture of compliance, then you cannot complain when your name is out there for the investing public to see as having been the subject of a disciplinary complaint or decision.