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Criminal Checks on Adviser Applicants Reach Bay State’s Radar

Securities regulators in Massachusetts have floated a plan to conduct criminal background checks on anyone applying to be an investment adviser representative in the state. The securities regulator is taking advantage of the access it recently obtained to the state’s electronic criminal history database. The new rule would require that anyone applying to be an investment adviser sign a consent form allowing the division to run his or her name through the system. The securities division believes “it is in the public interest and for the protection of investors to conduct criminal background checks of those individuals seeking IAR registration in order to ensure that the applicant is not subject to a statutory disqualification, and has truthfully and accurately disclosed any criminal background required on Form U-4”. The practical effect of the new rule likely will be limited. Applicants already must reveal past criminal activities, and according to some, a clean criminal slate is no guarantee of good behavior. Conducting the checks will help Massachusetts argue that it has done as much as it can to prevent future investor rip-offs. And, since Massachusetts is a leader when it comes to state securities regulations, the move may influence others to propose similar rules.

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