According to news reports, the Massachusetts Securities Division (the "Division") recently sent a "sweep letter" to firms asking broker-dealers to report information about their hiring policies and procedures. The Division, led by Secretary of the Commonwealth William Galvin, sent this letter to firms in which more than 15% of their representatives have at least one current misconduct report on their records; this figure is said to be above the average for Massachusetts-registered broker-dealers.
These 241 brokerage firms were asked to disclose hiring information dating back to January 1, 2014. The Division seeks information about how many representatives were terminated or placed on heightened supervision since then, with the intention of "keeping the rogue broker out of the industry," according to Mr. Galvin. The firms have a June 20, 2016 deadline to respond.
This review follows FINRA's February 2016 issuance of its own sweep letter, requesting information about member firms' compliance culture (see our blog post for more information). On May 23, 2016, FINRA's chairman and CEO, Richard Ketchum, delivered a speech about firm culture and the importance of reviewing representatives and their disciplinary records, including prior to their hiring. FINRA's focus on the securities industry culture aims to protect investors and market integrity through heightened scrutiny of broker-dealers, and state regulators like the Division have also taken increased market regulatory measures. In 2012, for example, the Division regulated structured product sales, imposing fines on a broker-dealer for sales of non-traditional ETFs.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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