FINRA Releases FAQ on Restricted Firm Rule

FINRA has also just released a list of the firms that have been expelled over the last five years.

While the Rule 4111 process "is new," a FINRA spokesperson told ThinkAdvisor Thursday, the list "enables firms to see the list of expelled firms FINRA is referencing as part of calculating the expelled firm association metric."

One question in the FAQ asks: If a broker-dealer meets the Preliminary Criteria for Identification, does that mean the firm is a "Restricted Firm"?

FINRA's response: "No. Rule 4111 establishes a multi-step, annual process through which FINRA will determine whether a member firm raises investor protection concerns substantial enough to require that it be designated (or re-designated) as a "Restricted Firm" and subject to additional obligations.

"The annual calculation of a member firm's Preliminary Identification Metrics to determine if it meets the Preliminary Criteria for Identification is the first step in this process. Subsequent steps in this annual process include the Initial Department Evaluation, the one-time staff reduction option (when available), the Consultation, and the Department decision. A Restricted Firm is a member firm that is designated as such in a Department decision."