Reconsidering Securities Industry Bars
68 Pages Posted: 8 Mar 2021 Last revised: 16 Nov 2023
Date Written: Nov 14, 2023
When a broker gets kicked out of the industry, is it the professional version of "capital punishment"? Should that matter to how we assess the sanctions design problem? This article examines industry bars in securities enforcement, focusing on those imposed by broker-dealer industry self-regulatory organization FINRA.
Relying on an empirical analysis of new BrokerCheck data, this article examines the prevalence and reasons for industry bars. As we might expect, many disclosures about the reasons for bars are suggestive of underlying misconduct that matches the investor protection mission of the securities laws. But perhaps surprisingly, many bars are imposed not in enforcement proceedings but in expedited proceedings for failure to engage with FINRA's processes, such as its investigations and requests for information, raising 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 particular patterns of sanctions we observe are the path-dependent outcomes of earlier coalitions' organizing to change control over economic ordering. Yet they remain justifiable 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. Engaging with the problem of industry bars highlights problems of proportionality as well as questions about whether existing legal protections are up to the challenge.
Industry bars have significant implications for market dynamics, including licensing and competition policy. This article argues that enforcement and expedited proceeding bars may well be justifiable in our current moment of deference to industry SROs. The article concludes by reflecting on the challenges facing administrative justice and the future of SRO enforcement in the face of increasing judicial scrutiny and the need for reform in both doctrine and practice.
Keywords: securities, enforcement, industry bar, political economy, LPE
JEL Classification: G28, K21, K22, K23, D45, D63, D73
Suggested Citation: Suggested Citation