Last month, the Financial Industry Regulatory Authority (FINRA) issued a proposed rule requiring member firms to strengthen their background investigations of applicants seeking registration.

The proposed rule adopts, in large part, an old rule issued by one of FINRA’s predecessors—the National Association of Securities Dealers (NASD)—relating to background investigations.  FINRA’s proposed rule change intends to “streamline” and “clarify” the language used in the NASD rule.  The language, as slightly modified, would require firms to “ascertain by investigation the good character, business reputation, qualifications and experience of an applicant before the member applies to register that applicant with FINRA and before making a representation to that effect on the application for registration.”

The proposed rule also makes clear that firms must review a copy of the applicant’s most recent Form U-5 (including any amendments thereto) within 60 days of the filing date of an application for registration, if the applicant previously had been registered with FINRA or another self-regulatory organization.  In reviewing the Form U-5, the firm is to take such action as “deemed appropriate.”  And, if the firm cannot undertake such a review, it must demonstrate to FINRA that it has made “reasonable efforts” to do so.

The proposed rule also adds the requirement that firms “establish and implement written procedures reasonably designed to verify accuracy and completeness of the information contained in an applicant’s Form U-4 no later than 30 calendar days after the form is filed with FINRA.”  Specifically, “such procedures shall, at a minimum, provide for a search of reasonably available public records to be conducted by the member, or a third-party service provider.”  It bears mention that, should a member solicit a consumer reporting agency to run a background check, it must remember to comply with the requirements of the Fair Credit Reporting Act (FCRA) and any state and local equivalents.

FINRA has requested comments on the proposed rule.  Employers in the securities industry should stay tuned for future developments.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Joseph O’Keefe Joseph O’Keefe

Joseph C. O’Keefe is a partner in the Labor & Employment Law Department and Co-Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Joe is an experienced trial lawyer who, for more than 30 years, has litigated employment disputes of all…

Joseph C. O’Keefe is a partner in the Labor & Employment Law Department and Co-Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Joe is an experienced trial lawyer who, for more than 30 years, has litigated employment disputes of all types on behalf of employers, before federal and state courts, arbitral tribunals (e.g. FINRA and AAA), and state and federal administrative agencies throughout the U.S. Joe has litigated employment-related lawsuits alleging breach of non-compete agreements, theft of trade secrets, discrimination, sexual harassment, whistleblowing, wage and hour violations, Title IX violations, breach of contract, defamation, fraud and other business related torts. Joe’s practice includes representing clients in complex class and collective litigation, including alleged violation of state and federal pay equity laws, violations of wage and hour laws and discrimination claims. Joe’s experience includes appellate work in both federal and state courts.

In addition to his extensive litigation practice, Joe regularly advises employers, writes and speaks on a wide range of employment related issues. He counsels clients concerning pay equity, use of Artificial Intelligence in the workplace, management of personnel problems, ADA/FMLA compliance, reductions in force, investigation of employee complaints, state and federal leave laws, wage and hour issues, employment policies and contracts.

Joe represents employers in a variety of industries including financial services, higher education (colleges and universities), pharmaceuticals/medical devices, health care, technology, communications, fashion, consumer products, publishing, media and real estate. He frequently writes articles concerning developments in the law and speaks at seminars concerning legal developments in the labor and employment law field.