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FMG Law Blog Line

Beware of FINRA’s Increased Focus on Non-Registered, Associated Persons

Posted on: August 9th, 2019

By: Elizabeth Lowery

On July 29, 2019, FINRA announced that Citigroup Global Markets, Inc. was fined $1.25 million for failing to conduct timely or adequate background checks on approximately 10,400 non-registered associated persons spanning a seven-year period from 2010 to 2017.  This large fine issued even though  Citigroup had completed screening and fingerprinting which was fully compliant with federal banking law for some of those employees.  Citigroup’s failure to screen all such employees as required by the more stringent federal securities laws allowed three individuals to associate with, or remain associated with Citigroup, even though they were subject to statutory disqualification from associating with a brokerage firm because of previous criminal convictions.  FINRA found that Citigroup had failed to maintain a reasonable supervisory system which had procedures to identify and screen non-registered associated persons.  In settling this matter, Citigroup consented to the entry of FINRA’s findings and to the corresponding $1.25 million fine, without admitting or denying FINRA’s charges.  FINRA’s Executive Vice President of its Department of Enforcement, Susan Schroeder, explained “FINRA member firms must live up to their responsibility as a gatekeeper protecting investors from bad actions.  It is important that firms appropriately screen all employees for past criminal or regulatory events that can disqualify individuals from associating with member firms, even in a non-registered capacity.”

This is yet one of several recent examples of FINRA’s focus on non-registered, associated persons.  Pursuant to FINRA Rule 8310, FINRA may impose sanctions, such as a censure, fine, suspension or bar, upon a person associated with a brokerage firm for violations not only of FINRA rules, but also for violations of certain federal securities laws and MSRB rules.  Such sanctions typically stem from FINRA enforcement actions.  FINRA enforcement actions often begin with a request for documents, information and/or sworn testimony, commonly called an “8210 Requests” because they are made pursuant to FINRA Rule 8210.  While registered associated persons, such as those holding a stockbroker’s license, are generally aware that they are subject to FINRA’s jurisdiction, scrutiny and sanctions; non-registered associated persons often lack such awareness.  It is important for brokerage firms and their employees to be mindful that FINRA’s jurisdiction, and its rules and enforcement actions, are not limited to registered associated persons.  This is especially since FINRA’s trend of increased focus on non-registered associated persons is expected to continue.

If you have any questions or would like assistance with a FINRA or SEC enforcement action, or with FINRA 8210 Requests, please contact Elizabeth Lowery at [email protected].

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