Registered Representatives Beware: FINRA Can Discipline You for More Than Your Securities Business | Eversheds Sutherland (US) LLP

FINRA only brings disciplinary actions against registered representatives (RRs) for their securities business, right? Wrong! FINRA often brings cases against RRs for conduct not related to their securities business. In fact, last month FINRA fined an RR $5,000 and suspended him for four months for actions he took in connection with a home insurance policy.¹

This case involved an RR who was registered with a broker-dealer and who also worked for an affiliated insurance company. In January 2024, he sold a home insurance policy to two customers. The next month, an animal kicked over a heat lamp, causing a fire that damaged a garage on their property. The RR subsequently discovered that he had failed to include the garage in the home insurance policy. He then emailed his underwriter to get coverage for the garage added to the policy. All good so far—other than the garage fire. (The FINRA settlement didn’t include facts about how the animal fared.)

The RR then took steps that led to his disciplinary action. He submitted an insurance claim on behalf of the customers for the fire, intentionally listing the date of loss as February 23, 2024—three days after the actual loss. The insurance company discovered the falsification.

FINRA found that the RR’s falsification on the insurance claim form violated FINRA Rule 2010, which requires members and associated persons to “observe high standards of commercial honor and just and equitable principles of trade” in the conduct of their business. FINRA noted that falsifications violate FINRA Rule 2010.

Takeaways:

• Firms may want to provide training for their RRs on this issue.
• FINRA may sanction RRs for non-securities conduct, including falsifying non-securities documents.

1 https://www.finra.org/sites/default/files/fda_documents/2024081936601%20Derrick%20Hostert%20CRD%206583919%20AWC%20ks.pdf

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