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FINRA proposing new surveillance to curb broker malpractice

It may not be anywhere near as robust as the oversight that the National Security Agency has been using to collect worldwide phone data, but the regulator of the nation's stockbrokers is looking to step up its surveillance efforts of those in its charge.

According to a statement issued recently, the Financial Industry Regulatory Authority has proposed launching a system to spot brokers who may be guilty of malpractice by overcharging customers. We suspect the news may be of interest to California readers.

What FINRA is calling for is an automatic collection system of trade and commission data. The self-funded, Wall Street watchdog group says that it hopes to be able to spot and eliminate overcharging, excessive trading and stock manipulation tactics. Brokers sometimes use manipulation schemes to bolster stock prices just ahead of getting rid of shares.

The current system FINRA uses depends on only periodic reviews of large batches of trade data, sometimes covering months of time. Officials acknowledge that the system can miss some violations. Still, FINRA touts that more than 7,000 reviews of brokers last year resulted in about $69 million fines. What is less clear is how much victims lost as a result of broker malpractice.

Susan Axelrod, the head of FINRA's regulatory operations says the new system may prove to be something of a challenge for brokers because it requires them to provide information in a standardized format. Ever conscientious of its members, though, FINRA says it is inviting the industry to offer feedback. They have until February.

In the end, Axelrod says, the changes will mean less guesswork and better regulation of the broker industry.

What do you think? Do you think a new system will help?

Source: Bloomberg, "Broker Surveillance Proposed by Finra to Thwart Overcharging," Zeke Faux, Dec. 23, 2013

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