Tuesday’s Headlines: Brokers Beware—Finra is Cracking Down, and It Will Likely Get Worse

Regulators are cracking down, and it could get worse. The Financial Industry Regulatory Authority (Finra) conducted 1,500 enforcement actions last year and fined financial institutions $70 million—a 50 percent jump, according to Investment News. According to a recent study, the number of brokers barred by Finra rose to 329 in 2011 from 288 the previous year. This three-year run of increased scrutiny reflects the agency’s aim to prevent investor rip-offs in the face of the Madoff scandal.

The agency seems to be focusing on short selling and auction rate securities cases, as well as advertising-related violations, especially “inaccurate or fraudulent internal communications.”

If for example, firms are telling their representatives internally that products are not risky, Finra is concerned that representatives will turn around and make these claims to investors, the study’s author told the news site.

While the pipeline for these enforcements might be slowing, new actions are on the way:

A new suitability rule, which is due to be finalized this summer, will help Finra maintain pressure on brokers to offer only products that fit a customer's investment needs, timeline and risk appetite.“We anticipate this will continue to be a hot area for Finra,” [the study’s author] said. “The new rule gives Finra additional ammunition.” Finra is looking not just at whether complex structured investments are suitable for a customer but also whether they are reasonably suited for the market.

 

Other News:

At least 50 advisers who managed $12 billion in assets at Merrill have left since Jan. 1st. [Reuters]

HSBC says it is not exiting its Asia markets now. [WSJ]

Traders and brokers are showing optimism about the bond market. [WSJ]

J.P. Morgan is the first bank to rank among the 10 biggest stock and bond fund managers. [Bloomberg]

UK insurer Prudential dismisses suggestions it could be broken up. [Telegraph]

Federal investigators found that managers at major banks turned a blind eye to rampant errors in the foreclosure process. [NY Times]

Investors launched legal action against RBS. [Telegraph]