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FINRA Asks For Details When Broker-Dealers Fire Employees

Published February 11, 2011

Experts believe that disputes over U-5 termination forms will increase due to a new set of FINRA directives.

FINRA’s Regulatory Notice 10-39 warns member firms to be more detailed when completing U-5 forms after firing employees. The notice focuses on a section of the form that asks why an employee is being fired and says that the common response of “broker violated firm policy” is too vague. FINRA now wants to know the exact reason for the firing.

Experts expect this to lead to litigation over defamation. Some of the information from a U-5 form becomes publicly available through a FINRA system after it is filed. If fired brokers believe the new detailed reports to be unfair and detrimental to their careers, they may seek litigation against their former firms. This could expose firms to a slew of new lawsuits.

Additionally, brokers are upset over the regulation because they worry it could limit their ability to sue for malicious use of U-5 forms.

Firms are criticizing the new FINRA notice for going overkill. They see no need to give additional detail if an employee was fired for an offense that had nothing to do with industry standards; for instance, in firings over dress code violations or tardiness. These firings have nothing to do with FINRA or industry standards, the firms argue, so the information should be kept within the firm.

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