FINRA inquiries are primarily triggered by disclosures on the Forms U4 and U5. Many of these disclosures stem from allegations made by a customer or broker-dealer. Some disclosures are financial, and they reference liens or disputes. Others reference arbitrations or judgements against the advisor. When a disclosure is published, and it contains information that leads FINRA to believe that a securities regulation, rule, or industry standard of conduct was violated, FINRA will investigate. Additional sources of FINRA inquiries include: referrals from regulatory agencies such as the SEC or state securities boards, cycle examinations of a firm or product, and FINRA’s massive proprietary surveillance programs.
FINRA Cops On The Beat
FINRA receives alerts for unusual or suspicious activities that may be indicative of abusive conduct or manipulation. It also keeps an eye on lawsuits and arbitration awards that involve registered representatives or member firms. Advisors have been burned for underreporting or late reporting information required to be disclosed on their Forms U4 — so staying compliant is incredibly critical to avoiding sanctions. The possibility that serious customer harm occurred has been a stated reason for investigations in the past, as well. This is why it’s incredibly important not to take customer dispute and employment separation disclosures lightly.
FINRA Disclosures And Investigations
The minute an advisor is slapped with a disclosure, the advisor needs to start thinking about hiring expert counsel in order to get on top of any kind of FINRA investigation. It’s important to know exactly what to include in a response, because stating or omitting the wrong fact could make it unnecessarily difficult to get the disclosure expunged. Having the same team handle both your investigation response and expungement claim makes for a seamless transition from one legal endeavor to the next and increases the likelihood of being able to clear your name.
AdvisorLaw provides representation against all threats, including FINRA enforcement, state regulators, the CFP Board, firm compliance, and retail investors. Contact us to discuss AdvisorLaw’s Enforcement Defense services. Our services were created exclusively for financial advisors, and the consultation is complimentary.