NASAA Coordinated Examinations Focus on Broker-Dealer Heightened Supervision Plans

Download: Coordinated Examination Report 2018

WASHINGTON, D.C. (September 25, 2018)—The North American Securities Administrators Association (NASAA) today released findings of a series of coordinated examinations of broker-dealer firms to survey heightened supervision plans for their registered representatives.

The coordinated examinations by securities regulators in 30 NASAA member jurisdictions sought to gain a better understanding of how broker-dealers of varying types and size are addressing the issue of heightened supervision and to highlight these practices to provide guidance on what the state securities administrators expect from broker-dealers in this space.

“Broker misconduct is a recurring threat for investors,” said Michael Pieciak, NASAA President and Vermont Commissioner of Financial Regulation. “Registered representatives with prior records of misconduct are three times more likely to be repeat offenders than their peers. Heightened supervision of risk-prone registered representatives is a crucial obligation of broker-dealer firms. I have asked NASAA’s Broker-Dealer Section to look into complaints regarding individuals who are on heightened supervision to determine what can be done to ensure investor protection responsibilities are met.”

NASAA members conducted 165 exams of 121 broker-dealers, a mix that included wirehouse, independent, and introducing firms. Of the firms examined, nine had no policies or procedures related to heightened supervision. Thirty-four firms had no criteria for the assessment of whether heightened supervision would be appropriate for new hires, and an equal number had no criteria for currently associated representatives.

Nearly half (49 percent) of the examined firms that had heightened supervision procedures in place had no policies and procedures regarding how a registered representative could be removed from heightened supervision; 14 of these firms had at least one registered representative on heightened supervision, and one firm had 13. Overall, the coordinated examinations found that of the 121 examined firms, 51 had at least one registered representative on a heightened supervision plan.

While customer complaints are the primary reason why a registered representative was placed on heightened supervision, state-required heightened supervision also was a significant factor. Twenty-three firms had at least one registered representative on a heightened supervision plan because it was required by a state regulator as a condition precedent to registration in that jurisdiction.

NASAA President-elect Frank Borger-Gilligan, who oversaw the coordinated exams as chair of the Broker-Dealer Section, noted that less than 25 percent of the examined firms maintained supervisors on site who were responsible for enforcing heightened supervision plans. Additionally, about 20 percent of firms (both large and small), failed to enforce the procedures they had developed.

“Cumulatively, these numbers indicate that there is much work to be done,” Borger-Gilligan said. “NASAA encourages all firms to review their procedures to ensure they are acting in compliance and to develop heightened supervision procedures, including the removal of individuals from heightened supervision, where they may be lacking.”

For More Information:
Bob Webster | Director of Communications
202-737-0900

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