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New Rule Requires Brokerage Firms to Adopt More Stringent Background Checks for New Personnel


2/3/15

In an effort to strengthen the hiring procedures for brokerage firms, the Securities and Exchange Commission (SEC) has approved the Financial Industry Regulatory Authority’s (FINRA) proposed Rule 3110(e) to strengthen background reviews for new hires. The new requirement, which will be implemented on July 1, 2015, will require firms to adopt written procedures to verify the accuracy and completeness of an individual broker’s registration on Form U4 – the primary avenue through which investors obtain information about brokers. This requirement intends to ensure that brokerage firms obtain a more comprehensive and accurate profile for any new registrants or newly hired personnel. The firm must verify the accuracy and completeness of the applicant’s Form U4 no later than 30 calendar days after an initial or transfer form is filed with FINRA.

The additional requirements are likely to increase compliance time and costs for financial firms as the brokerage firm cannot just perform an internet search, but must perform a more extensive investigation. The brokerage firms will have to work quickly in order to write the procedures to be implemented that will fully comply with these revised regulations.

Contact

For more information, please contact Jay Levy, a CohnReznick partner and the Firm’s Financial Services Industry Practice Leader, at jay.levy@cohnreznick.com or 212-297-0400.

To learn more about CohnReznick’s Financial Services Industry Practice, please visit our webpage.


Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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