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FINRA’s Proposed Rule Fails to Rein In Recidivist, High-Risk Brokers

Tuesday, December 29, 2020
Contact: Pamela Russell at 202-618-6433 or prussell@bettermarkets.com
Washington, D.C.  –  Senior Securities Policy Adviser Lev Bagramian issued the following statement after Better Markets filed a comment letter with the Securities and Exchange Commission on a proposed Financial Industry Regulatory Authority rule that fails to adequately protect unsuspecting investors:
“FINRA’s record of policing recidivist, high-risk brokers is dismal. These broker-dealer firms are about 2% of FINRA’s membership, and they specialize in investor harm. These predator wolf-pack firms attract and dupe investors by using FINRA’s regulatory seal-of-approval. And instead of shutting down these wolf packs, FINRA is now proposing to essentially make it marginally costlier for them to operate, which would perpetuate the predatory wolf-pack business model. 
“In our comment letter, we urge the Commission to reject the needless and harmful incrementalism that FINRA has adopted as a regulatory approach in dealing with these predator wolf-packs. Regulatory incrementalism and a slow, cautious approach in policymaking can be prudent when matters under consideration are complex, nuanced and the impact of the suggested solutions unclear. But the harm caused by recidivist wolf-pack firms is crystal clear, and the solution is simple: clean up the brokerage industry by de-licensing and barring members who choose to sell obviously unsuitable products, and cheat, defraud and harm countless victims and rob them of their future financial security.  Making matters worse, these predator firms often prey upon seniors, minorities, those with language barriers, and those who lack basic financial literacy but have saved up a little for their kids’ education or for a dignified retirement.
“These firms harm both consumers and taint the good names of honest brokers. What services or goods do the predator wolf-pack firms provide to investors that cannot be offered by the thousands of other FINRA members that follow FINRA and SEC rules? What is the public interest, market integrity, and pro-investor rationale for permitting these predatory firms to use FINRA’s seal-of-approval to continue to harm investors?
“The proposal now before the Commission fails to answer these threshold questions, which is a disservice to millions of American investors who must rely upon FINRA as the cop on the beat and the front-line regulator of the broker-dealer profession. It is now up to the Commission to hold FINRA accountable in failing to pass this fundamental test and correct FINRA’s failure.”
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.

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