NASD: Brokers With Complaints Need A Watchful Eye
Heed the red flags. This is the thrust of a new NASD proposal that
would require brokerage houses to devote extra supervision to reps with
extensive numbers of complaints or regulatory actions against them. The
proposal would require that firms pay more attention to brokers who
drew more than three customer complaints or regulatory actions in the
last five years and/or two or more terminations or "internal firm
reviews" involving wrongdoing. The NASD has previously issued only
guidelines on this matter, not requirements. "I think it’s a good
idea," says Chicago-based securities attorney James Eccleston of the
proposal. He notes that the current guidelines are not very specific
and leave special supervision largely to the discretion of individual
firms. "Having this bright-line test will make it easier for firms to
apply," he says, making it easier to achieve the goal of protecting
investors from unscrupulous brokers.
In the last five years, 2,751 brokers have logged more than three
customer complaints, 216 have had more than three investigations or
regulatory actions and 1,198 have been fired or subjected to an
internal review, according to the NASD.
"Investors face higher risk dealing with a broker who has a long
regulatory record," says Robert Glauber, chairman and CEO of NASD, in a
statement. "Securities firms must respond to that risk with enhanced
controls."
The Securities Industry Association hasn’t formally commented on
the proposal yet. However, an SIA spokeswoman said the association is
looking at it, and that while the idea of tough regulation is one the
SIA supports, "we’re concerned that the ‘three complaints
and you’re marked’ approach may be arbitrary—for
instance, what about three unfounded complaints?"
There are currently approximately 663,000 registered representatives
with the NASD. Representatives from major wirehouses, including Merrill
Lynch, UBS Securities and Wachovia Securities, declined comment.
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