May 14, 2019
Investment News and Law360 sought out McGuireWoods partner Emily Gordy for insights on a recent Financial Industry Regulatory Authority rule proposal to increase regulators’ leverage over firms that have multiple disclosures or that hire a certain number of associated persons with multiple disclosures.
The proposal, announced May 2, would incentivize broker-dealers to more closely monitor compliance and avoid hiring a high percentage of staff with a history of Wall Street misconduct. The proposal would, among other things, require firms designated as “restricted firms” to establish “deposit accounts” through which FINRA would control access to the funds.
“That’s definitely a novel approach,” Gordy told Law360. A former deputy of enforcement at FINRA and deputy chief counsel for the Securities and Exchange Commission’s Enforcement Division, Gordy said using such a financial tool to encourage compliance “is unusual, and I expect that there will be comment on that.”
It goes beyond compelling rogue firms to keep funds available to pay awards or judgments, she told Investment News. By encumbering some of a firm’s capital, Gordy said, the FINRA proposal “impacts the bottom line, and they clearly hope that it will change the behavior of the small number of firms they are most concerned about.”