Following on the heels of a recent report by the NASAA, a group responsible for monitoring the securities industry, which showed that many broker-dealers are not doing enough to monitor “rogue brokers” with a history of multiple indiscretions on their permanent records, news broke recently that supervision of brokers may be further eroded if changes proposed by the Financial Industry Regulatory Authority (FINRA) are passed into official regulation.
Broker-Dealers Complain About Record-Keeping Burden of Selling Away Supervision
Current rules stipulate that brokerage firms must supervise the outside business activities of their sponsored brokers, whether those business activities are related to investing or not. However, FINRA has proposed eliminating some of these requirements to ease the supervisory burden on broker-dealers. Brokerage firms have long complained of the tremendous record-keeping burden imposed on them by regulations surrounding supervision of outside business activities.
Investors May See Surge in Investment Scams Using Selling Away
However, as investor advocacy groups like the Public Investors Arbitration Bar Association, or PIABA, have been quick to point out, if the regulatory changes are made, there is likely to be a strong increase in investment scams and fraudulent activity around selling away (outside business activities). PIABA recently released a report that details exactly what the securities industry and retail investors in particular have to look forward to if FINRA rolls back its supervisory expectations on broker-dealers.
According to PIABA, investment scams using selling away as a platform are among the most common deployed by the so-called rogue brokers or bad apples that have collected a disproportionate number of customer disputes and disciplinary actions on their permanent records.