Posted in: FINRA | Greedy Brokers |
FINRA Vice President Marc Menchel told a group of compliance professionals last week that FINRA will consider regulating back-office employees at broker-dealer firms. If true, those employees would have to register like brokers, supervisors, and executives at member firms.
As FINRA learned the hard way earlier this year, staff employees can potentially generate fraudulent documents, defraud customers themselves, or aid brokers in their schemes. Staff employees are not required to have any securities experience, or pass any exams administered by any regulatory body.
Prosecutors in the Bernie Madoff case discovered that his employees had access to clients’ funds and information, in addition to providing a front for his business.
Last August I also wrote about Tamara Moon, a sales assistant at Citigroup who managed to embezzle $850,000 from 22 of her firm’s clients. The list of defrauded customers included a U.S. diplomat, widows, elderly couples, and even Moon’s father. FINRA ended up barring her earlier this year, but it was never made clear how Moon gained access to her customer’s information, in addition to manipulating their accounts.
As Menchel pointed out, the most difficult issue regarding the regulation of back-office employees would be deciding just how much to regulate—there are a broad range of employees involved, and it is impractical to register them all the same.
One possibility Menchel mentioned was a “broad qualifying exam” that would test all employees on regulatory rules. While this may expose some ignorant employees and raise obvious red flags, it certainly won’t stop the Tamara Moons from deliberately ripping off customers.
Even if FINRA addresses this issue, which hopefully they will, again it appears that they are late to the party. Unregistered back-office employees have demonstrated the ability to influence customer accounts.
Customers at all the major firms have no way of knowing exactly which employees have access over their account, and neither does FINRA.
