Background Investigations Now Required by FINRA

FINRA Rule 3110(e) (Responsibility of Member to Investigate Applicants for Registration) is effective as of July 1, 2015. The new rule requires, prior to registration, that broker-dealers conduct an investigation of the background of all potential applicants for verification of the information on the Form U4, with the goal to ascertain, by investigation, the good character, business reputation, qualifications and experience of an applicant before filing a Form U4.

In making a determination for the registration of a registered representative, the broker-dealer should utilize all avenues available to it before making a final decision to register an applicant, or retain an applicant where a Form U4 has been filed before the investigation is complete. To the extent it is impossible to complete the verification prior to filing the Form U4, the verification must be completed within 30 days of the Form U4 filing.

The verification process must include at a minimum, a national search of reasonably available public records conducted by the firm or a third-party service provider to verify the accuracy and completeness of the information contained in the Form U4. Public records include, but are not limited to general information, such as name and address of individuals, criminal records, bankruptcy records, civil litigations and judgments, liens, and business records.

Additionally, firms must ensure that such public records searches are conducted in accordance with all applicable laws, rules and regulations, including federal and state requirements, and that all necessary approvals, consents and authorizations have been obtained.

For more information see Regulatory Notice 15-05.