What is FINRA Rule 4111
Last year (Jan 2022) FINRA implemented key changes in its Rule 4111. This rule was designed to target risky broker-dealers that have a ‘substantial track record’ of misconduct. Notably, the new rule forces these risky broker-dealers to deposit cash or securities into a restricted account that would be used in the event of arbitration.
The “Restricted Deposit Requirement” (RDR) serves as an added layer of insurance or regulatory leverage targeted at smaller firms, where problematic advisors often tend to gather and operate under their licenses. These identified “restricted firms” will be obligated to maintain a financial deposit, either in cash or securities, within a segregated account held at a bank or clearing firm. The specific amount of the deposit will be at the sole discretion of FINRA, and the firm’s ability to access these funds will be limited, subject only to approval from FINRA.
Since approving this rule FINRA has also released a compliance tool for firms that have been investigated or put on the ‘restricted’ list. This year they are taking it a bit further. FINRA has introduced amendments to Rule 8312 (FINRA BrokerCheck Disclosure) to disclose information on BrokerCheck about whether a specific current or former member firm is labeled as a “restricted firm” in connection with Rule 4111.
Why this new change to Rule 4111 matters for brokers
If a firm is identified as a ‘restricted firm’ then they will have two options.
- Option 1: reduce staff.
- Option 2: meet the deposit requirement
So, if a firm (of any size) is stamped as being restricted FINRA will give them the option of reducing the number of advisors in the firm (like those with disclosures) or have to pay into the RDR.
This is important for brokers to understand. If you have a U5 termination on your BrokerCheck you may be at risk.
What a FINRA attorney can help you with
Your work environment can undergo rapid changes, catching you off guard. What was once a stable position may now leave you questioning your role within the company.
Exiting a job doesn’t necessarily signify the end of your career journey. Engaging legal counsel and representation before, during, or after a termination is a prudent step to take. Our team of securities attorneys is here to offer expert guidance, assisting you in understanding your legal choices and determining the most favorable course of action to pursue.
