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Green & Schafle Motto

Brokerages Must Do More to Supervise Brokers with History of Misconduct


Broker-dealers are not doing enough to supervise brokers under their charge who have committed indiscretions in the past. according to a recent report from the North American Securities Administrators Association (NASAA) based on its sweeping investigation covering 30 jurisdictions across the US, not nearly enough firms are putting brokers with a history of misconduct on “heightened supervision.”

FINRA and NASAA Want Broker-Dealers to Do More to Supervise Bad Apple Brokers

As previous reports by the regulatory body of the securities industry, the Financial Industry Regulatory Authority, FINRA, brokers who have been involved in customer disputes and disciplinary actions in the past have a strong statistical inclination to become repeat offenders. In fact, FINRA has issued its own reports about these so-called, “bad apples,” who own a disproportionate number of disciplinary infractions when compared with the rest of the industry’s professionals.

The new report by the NASAA draws further attention to the problem of these bad apples or repeat offenders, in that it reveals that broker-dealers are not, as regulations suggest, placing these brokers on “heightened supervision,” which involves greater scrutiny and restrictions on their ability to control accounts and relate to clients.

According to the report, less than 25% of the firms studied in the report maintained supervisors on site to monitor brokers on heightened supervision and about 20% failed to enforce the correct procedures. “Cumulatively, these numbers indicate that there is much work to be done,” said NASAA President-elect Frank Borger-Gilligan, who oversaw the coordinated exams as chair of the Broker-Dealer Section. “NASAA encourages all firms to review their procedures to ensure they are acting in compliance and to develop heightened supervision procedures, including the removal of individuals from heightened supervision, where they may be lacking.”

Pennsylvania & New Jersey Securities Litigation Team

If you or someone you know has been the victim of securities fraud or broker misconduct, please contact our attorneys immediately for a free consultation at 215-462-3330 or by using our online contact form.

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