Heightened Supervision Measures are Lacking Amongst Broker-Dealers

An examination found some of its members have no heightened supervision measures in place at all.

The North American Securities Administrators Association (NASAA) has been looking into whether broker-dealers are adhering to heightened supervision procedures. A thorough examination, undertaken by securities regulators in 30 NASAA member jurisdictions.

On Tuesday NASAA posted its findings from 165 examinations of 121 broker-dealers. This included wirehouse, independent and introducing firms. The results showed that the procedures in place to monitor representatives was seriously lacking.

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Heightened supervision, as the term implies, means that in certain instances, firms are required to monitor employees or associated members more closely. This is specifically for representatives who have a history of misconduct.

The Financial Industry Regulatory Authority (FINRA), a self-regulating body, and the Securities and Exchange Commission (SEC) both require firms to have measures in place that assess whether heightened supervision is appropriate. FINRA has emphasized that this process needs to be tailored on a case-by-case basis.

The Examination Findings

In its examination, NASAA found that many of the companies that were surveyed were not taking these measures seriously. In fact, nine of the total firms examined had no policies or procedures in place at all in relation to heightened supervision. In addition, 34 companies had no criteria in place to determine whether they need to include heightened supervision measures for new hires.

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An equal number also had no criteria for currently associated representatives. Furthermore, of the examined firms, 49 percent had nothing in place to decide how a registered representative could be removed from heightened supervision.

The President-elect of NASAA Frank Borger-Gilligan oversaw the coordinated exams as the chair of the Broker-Dealer Section. He noted that of the examined firms, less than 25 percent had supervisors on site who were responsible for enforcing the measures.

Commenting on the findings, Borger-Gilligan said: “Cumulatively, these numbers indicate that there is much work to be done. 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.”

Michael Pieciak Begins his Term as NASAA President

On Tuesday, Michael Pieciak was appointed as the 101st president of NASAA. During his address, he outlined his key focuses, which include modernizing the regulator’s operations and launching initiatives for millennial investors, cybersecurity, financial technology, cryptocurrency enforcement matters, multijurisdictional enforcement matters, and standards of care.

Michael Pieciak, NASAA
Michael Pieciak
Source: LinkedIn

Speaking on the report, Pieciak added: “Broker misconduct is a recurring threat for investors. 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.”

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