FINRA Launches Conflict-of-Interest Sweep
The Financial Industry Regulatory Authority (FINRA) is requesting a three-hour-long
meeting with its member broker-dealers to discuss the firms’ ability
to manage and identify conflicts of interest. In particular, the self-regulatory
organization wants to “determine whether firms are taking reasonable
steps to properly identify and manage conflicts that could affect their
clients or the marketplace,” according to
an examination letter sent last month.
To prepare for the meeting, FINRA is asking each firm to submit the following
• the most significant conflicts of interest the firm is currently managing;
• the name of the person or department responsible for conducing
• a summary of the types of documentation prepared at the conclusion
of each review; and
• the name of the person or department who receives the completed
While FINRA’s letter notes that “this inquiry is not an indication
that FINRA has determined that your firm has violated any rules or regulations,”
some industry experts see the review as
a sign that the organization is preparing to file a number of enforcement actions against its member firms.
While this may be bad news for brokers and brokerage firms, it would likely
mean added protections for investors, many of whom lose money each year
to fraud and misconduct involving undisclosed conflicts of interest.
This past June, for example, the SEC accused a Phoenix-based investment
advisor of violating his
fiduciary duty by recommending hundreds of thousands of dollars worth of investments
to his clients without disclosing that he had a personal stake in the
companies. (For more on that case, click
here.) Unfortunately, such misconduct isn’t uncommon in the investment world.
To learn more about undisclosed conflicts of interest and how they can
affect your investments, click