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Massachusetts Proposes Criminal Background Check for Registered Advisors

Meyer Wilson

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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