FINRA Requests Conflict-of-Interest Sweep for Broker Dealers

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 information:

• the most significant conflicts of interest the firm is currently managing;
• the name of the person or department responsible for conducing conflicts reviews;
• 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 documentation.

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 here.


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