FINRA Rules for Registered Representatives Filing Bankruptcy

Filing for bankruptcy won't necessarily derail your career if you are – or you're looking to become – a registered representative in the securities industry. You won't be able to keep it a secret, however. Individual states have their own rules and regulations, and the Financial Industry Regulatory Authority, commonly known as FINRA, ramped up its requirements for background investigations effective July 1, 2015.


What FINRA Does

FINRA is the watchdog of the securities industry and it watches over itself -- it's self-regulatory. The Security Exchange Act gave life to the organization in 1934. It's overseen by the Securities and Exchange Commission, and it licenses brokers and governs member firms, which include all those that do business with the public. FINRA works to ensure that ethical standards are met and takes action to discipline brokers, firms and representatives who have fleeced or otherwise done harm to customers and clients.


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Your Duty to Report

When you apply for a job with a securities firm, you must complete Form U4, the Uniform Application for Securities Industry Registration or Transfer, and submit it to your employer. If you, or a company you controlled, filed for bankruptcy within the last 10 years, you must include this information on the form. Although bankruptcy isn't an automatic bar to your license, failing to report it is a statutory disqualification. Your application won't be automatically accepted if you've filed for bankruptcy. It's subject to a manual review process -- in other words, FINRA will investigate the details of your situation. You're more likely to be approved if your background doesn't include other unsavory incidents, like being guilty of regulatory violations or having a criminal record.



If you file for bankruptcy after you’ve begun your career and you're already licensed, you have 30 days after filing to give your broker an updated Form U4. FINRA will review the change through the same manual review process and determine whether you're still eligible for licensing.

The Role of Member Firms

Your bankruptcy filing will most likely come to light even if you don't disclose it. Effective 2015, FINRA requires that securities firms do background checks on all applicants and verify the information included in their Forms U4. This includes searching public records -- and your bankruptcy is a matter of public record. Your broker can't submit the form to FINRA unless and until it's done a background check and it must complete the public records check within 30 days of filing the form. FINRA will also do its own records search.


The Bankruptcy Code

Aside from FINRA requirements and regulations, the U.S. Bankruptcy Code has its own rules. If you're actively working as a commodities broker or stockbroker, you're limited to filing for Chapter 7 personal bankruptcy. You can't file for Chapter 13, the form of bankruptcy where you repay your debts under court supervision over three to five years.



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