Massachusetts Proposes Criminal Background Check for Registered Advisors
Massachusetts regulators want to be among a small handful of states to
require criminal background checks for registered investment advisors.
The proposed rule change comes shortly after the Massachusetts Securities
Division’s Registrations, Inspections, Compliance and Examinations
Section was granted access to the state’s electronic criminal history
database, the “iCORI system.”
Investment advisors are typically required to register in the state in
which they do business, and most states require the disclosure of certain
criminal convictions. Different states, however, handle those disclosures
differently, and many don’t require criminal background checks to
verify the information.
Some states, such as Maine, require investment advisor registrants to be
fingerprinted. Those prints are then run through a state background check.
Other states, including Florida, take the process one step further. After
the state check is completed, Florida officials forward the prints to
the FBI for federal processing.
Other states may require a more extensive background check, but, many states,
including Massachusetts, currently take the investment advisor registrants
at their word.
They don’t verify the facts, and they don’t take measures to
ensure the registrant has told the entire truth. Unfortunately, this allows
con artists, who probably weren’t going to tell the truth anyway,
to escape regulator scrutiny.
"The unfortunate reality is people are able to stay in the business
despite serious blemishes on their records,"
Barbara Roper, director of investor protection for the Consumer Federation
of America, told the Wall Street Journal. "A criminal-background check may identify some of those people."
Protecting consumers by prohibiting convicted felons from serving as investment
advisors seems like a no brainer, but legislators don’t always see
so clearly. Hopefully, the Massachusetts proposal will pass, and additional
states will follow suit.
The Massachusetts proposal is currently open for comment. Written comments
are due by 5 p.m. on May 15. To learn more, including where to send comments,
read the complete
Request for Comment.
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