The Financial Industry Regulatory Authority (“FINRA”) recently filed a proposal with the Securities and Exchange Commission (“SEC”) to amend FINRA’s rule governing member firms’ background investigations into associated persons applying for registration with the firm. Specifically, the proposed rule clarifies the current investigation procedures contained in FINRA Rule 3110(e) and adds a provision requiring member firms to adopt written procedures designed to verify the accuracy of the disclosures contained in an applicant’s Uniform Application for Securities Industry Registration or Transfer (Form U4). The proposed rule change comes in the wake of previous heightened supervisory controls approved by the SEC in December 2013 targeted at detecting and reporting insider trading.
By mandating full disclosure of an applicant’s employment history, registration history, and disclosure events, the prophylactic amendments to FINRA Rule 3110(e) are intended to reduce subsequent employment disputes and protect customers and their investments. The proposed rule change has not yet been noticed by the SEC for comment, but once consumer and industry comments have been received and reviewed, FINRA will announce an effective date for the proposed FINRA Rule 3110(e), taking into account any revisions necessitated by the comments received. The effective date will be provided in a Regulatory Notice published no later than 90 days following SEC approval.