News & Insights

Finra Releases Guidance On Restricted Firm Obligations

FINRA released Notice 21-43 which answered frequently asked questions about Restricted Firm Obligations. Rule 4111, or Restricted Firm Obligations, became effective on January 1, 2022, and sets additional requirements for broker-dealers with a significant history of misconduct. Rule 4111 requires member firms that are identified as Restricted Firms deposit cash or qualified securities in a segregated, restricted account; adhere to specified conditions or restrictions; or comply with a combination of such obligations.

FINRA expects that its first “early indicator calculations” of which firms will be considered Restricted will be available to member firms in early June of this year. FINRA will conduct an annual, multi-step process to determine whether a member firm should be designated as a Restricted Firm. There are six Preliminary Identification Metrics based on six categories of events or conditions. However, meeting the preliminary criteria does not necessarily mean that a firm will be designated as Restricted. Each year firms will have the ability to be redesignated if they no longer meet the criteria.