In Regulatory Notice 21-09, FINRA announced the adoption of new supervision and disclosure rules for brokers with a significant history of misconduct and the firms that employ them. Of particular interest to investors, FINRA amended BrokerCheck Disclosure requirements in Rule 8312 to improve disclosures relating to the Taping Rule, Rule 3170 (Tape Recording of Registered Persons by Certain Firms). The Taping Rule requires firms with a specified number of registered persons who previously worked for disciplined firms to have certain supervisory procedures intended to protect customers from fraud and improper sales practices. As the name of the rule suggests, a taping firm must have procedures to record phone calls between registered persons and potential customers or customers. The recordings must be maintained for at least three years.
Previously, FINRA would only release information about whether a firm was a taping firm in response to a phone inquiry to BrokerCheck. This limitation on disclosure meant that anyone searching a firm on BrokerCheck via the internet would not have access to information about whether a firm was a taping firm. Amended Rule 8312(b) now requires FINRA to make taping firm status available through a BrokerCheck web search. According to FINRA, that information will be displayed in the BrokerCheck summary section and will include, “This firm is subject to FINRA Rule 3170 (Taping Rule).”
Regulatory Notice 21-09 also announced other new rules and changes to existing rules. While an appeal of a disciplinary decision is pending, new Rule 9285 requires firms to adopt a heightened supervision plan for a broker found to have violated a statute or rule. The heightened supervision of the broker must address the violations found in the disciplinary proceeding.
FINRA also amended Rule 9522, a rule relating to a firm associating with a person who is disqualified from engaging in the securities business under the Securities Exchange Act of 1934. The amendments require a firm that applies to continue to associate with a disqualified person to have a heightened supervision plan that remains in place while FINRA reviews the application.
