Reconsidering Securities Industry Bars

Is it professional “capital punishment” for a broker to be barred from industry?
How does that affect designing sanctions? This article examines industry bars in securities enforcement, focusing on those imposed by broker-dealer industry’s self-regulatory organization FINRA.
Relying on an empirical analysis of new BrokerCheck data, this article discusses the prevalence and reasons for industry bars. As we might expect, many disclosures about the reasons for bars are suggestive of underlying misconduct matching the investor protection mission of the securities laws. In disciplinary cases, FINRA has prioritized industry bars in cases involving overt dishonesty and harm to investor interests, but the bulk. Yet most bars are imposed not in enforcement proceedings but in more informal “expedited proceedings,”
for nondisciplinary reasons like failure to engage with FINRA’s investigations and requests for information. These factual findings raise questions both about these bars’ function as well as the procedures surrounding these bars. Combining empirical, historical, and theoretical analysis of the political economy of securities industry bars, this article argues that the observed pattern of sanctions are the path-dependent outcomes resulting from past political coalitions among regulated brokers, formed with the goal of changing control over economic ordering. At the same time, this article proposes that such bars remain justified
today for their role in promoting investor protection, self-regulatory organization
authority over the markets, and broader social concerns in the design of sanctions regimes.