Stockbroker Background Check: A Complete Guide [2025]

Financial organizations that need to hire stockbrokers must conduct in-depth stockbroker background checks.

These investigations must meet the regulatory requirements outlined by FINRA and comply with all relevant laws.

Did you know that the Financial Industry Regulatory Authority (FINRA) fined CitiGroup $1.25 million for failing to conduct thorough background checks and hiring applicants with disqualifying criminal convictions?

Here’s a guide about stockbroker background checks that financial and investment firms should know.

What is a Stockbroker Background Check?

A stockbroker background check is a thorough investigation of the background of a potential stockbroker, including the standing and validity of their license, any history of sanctions or discipline, criminal history, employment history, education, finances, and more.

This type of pre-employment screening is more extensive than standard pre-employment background checks for other types of jobs because of regulatory requirements and the access that brokers have to sensitive customer financial data.

Responsibilities of Stockbrokers

Stockbrokers are regulated registered investment advisers (RIAs) or brokers that deal in securities and provide investment and financial advice to their clients.

They execute transactions to purchase and sell stocks and bonds on behalf of their clients in exchange for fees and commissions.

The nature of a stockbroker’s job means that they have significant access to their clients’ savings and investments. They educate clients to help them understand the stock market and develop investment strategies.

Regulatory and Licensing Requirements for Stockbrokers

Stockbrokers are regulated by the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC).

Because of their fiduciary obligations to clients, stockbrokers are required to pass stringent FINRA background checks by filing Form U4 and passing several exams, including:

• Series 7 Exam – Covers the trading of various types of securities
• Series 63 Exam – Covers state laws and regulations that apply to brokers and administered by the North American Securities Administrators Association (NASAA)

These two exams must be taken and passed before a stockbroker can obtain a license.

They must then complete continuing education courses, comply with the law, adhere to ethical standards, and meet regulatory requirements to keep their licenses in good standing.

Other exams that a stockbroker might also take include:

• Series 3 Exam – Test administered by FINRA that is required if a stockbroker will sell future commodities contracts
• Series 6 Exam – Test administered by FINRA that is required to sell a limited set of packaged products, including mutual funds and variable annuities
• Series 31 Exam – Test that can be combined with Series 3 to allow a stockbroker to be licensed to sell groups of mixed commodities futures (managed futures)
• Series 65 Exam – Test administered by NASAA that allows stockbrokers to handle managed money accounts and charge hourly rates instead of commissions
• Series 66 Exam – A combined exam that combines Series 63 and 65 and covers the topics included on both tests and can only be required by organizations that want a stockbroker to qualify for Series 63, 65, and 66

Each of these tests results in a different license. This means that a licensed stockbroker might have multiple licenses.

Why are Background Checks Important for Stockbrokers?

Since a stockbroker will have significant access to your clients’ confidential financial information and their money, conducting an in-depth background check can help to identify indicators that a potential broker is untrustworthy or unqualified to fill the position.

Employers derive the following benefits from conducting stockbroker background checks:

1. Maintain Regulatory Compliance

FINRA requires registered financial and investment firms to complete comprehensive background checks on applicants.

Any applicant with disqualifying criminal convictions or disciplinary sanctions must be excluded.

Failing to conduct in-depth stockbroker background checks could result in substantial fines and penalties.

2. Protect Client Safety

Since a stockbroker will necessarily have access to your clients’ confidential information and finances, conducting comprehensive stockbroker background checks can ensure the people you hire are trustworthy and do not have red flags in their backgrounds that could threaten the safety of your clients and their money.

3. Minimize Risks of Reputational Harm

A rogue stockbroker can significantly damage the reputation of a brokerage and investment firm.

When a stockbroker violates the law, makes poor investment decisions, or steals client funds, these types of activities can be extensively reported by the media and cause significant damage to a firm’s reputation.

Stockbroker background checks can help to weed out potential brokers who have a history of sanctions while working for past employers.

4. Protect Your Company’s Trade Secrets

Many registered financial firms have proprietary algorithms and other trade secrets that they use to analyze the market and identify when to get in and out of a particular company’s securities.

Ensuring prospective brokers have spotless records and do not have anything that could indicate they might be under financial pressure could help to protect your trade secrets from potential theft and exposure.

5. Mitigate Liability Risks

Conducting thorough background checks on stockbrokers can help to mitigate your negligent hiring liability risks.

Doing so can also help you feel confident that your organization can remain compliant with FINRA and the SEC and avoid potential regulatory actions and their associated fines and penalties.

What Shows up on a Stockbroker Background Check?

Stockbroker background checks are typically comprehensive and include many different types of searches, including:

• Criminal background checks
• Professional license verification
• Employment history
• Education history
• Credit history/bankruptcy checks
• Identity verification
• Government sanctions checks
• Global watchlist checks

Here’s what might appear on these types of searches.

Criminal History

A criminal background check for employment will show if an applicant has any pending criminal cases or convictions.

For an applicant with a criminal record, the following information will be reported:

• Case number
• Offense type
• Date of offense
• Offense severity (felony/misdemeanor)
• Disposition if the case has been disposed of
• Date of disposition if the case has been disposed of
• Sentence if the case has been disposed of

Professional License Verification

Validating the licenses held by a prospective stockbroker is critical since you must exclude individuals who have certain types of sanctions against their licenses.

A professional license verification reveals the following information about an applicant’s license:

• Type of license
• Issuance date
• License number
• License status
• Expiration date
• Sanctions and discipline against the license
• License validity

Employment History

When stockbrokers apply for jobs, they must report their employment history for the past five years on Form U4 to FINRA.

Employment verification allows you to confirm the following information about an applicant’s past jobs:

• Employer’s name and address
• Dates of employment at each company
• Job titles/positions

Education Verification

Most registered investment firms require stockbrokers to have at least a Bachelor’s degree.

Completing an education verification shows the following information about each school the applicant has attended:

• Name and address of each educational institution
• Attendance dates
• Whether any degrees or diplomas were conferred

Credit History/Bankruptcies

Stockbrokers must report bankruptcies, liens, and civil judgments on Form U4 from the past 10 years.

A credit history check will report bankruptcies, liens, and civil judgments that a stockbroker has had from the last seven to 10 years based on the restrictions under the Fair Credit Reporting Act (FCRA) and state laws.

Identity Verification/Social Security Number (SSN) Trace

A Social Security number trace serves as a starting point for employment background checks and shows the following information about the number an applicant has reported:

• Year the Social Security Administration (SSA) issued the number
• State in which the SSN was issued
• Names and aliases associated with the SSN
• Addresses associated with the SSN
• Validity of the SSN
• Date of birth associated with the SSN

The consumer reporting agency (CRA) conducting the background check can use these types of information to identify further searches to conduct.

Government Sanctions/Watch List Checks

The following sanctions checks should be performed on prospective brokers:

FINRA BrokerCheck

BrokerCheck is a service provided by FINRA that allows you to search for an individual’s license.

This search reveals whether an individual’s license has been suspended or if the individual has been debarred from working in the financial industry.

OFAC Check

The Office of Foreign Asset Control (OFAC) is a division of the U.S. Department of the Treasury.

It maintains a regularly updated database of individuals and suspected terrorists who have been blocked.

Conducting an OFAC check on a prospective stockbroker will reveal whether they are a suspected terrorist, have worked for a target country, are suspected of narcotics trafficking, or have been deemed a threat to national security.

SEC Action Lookup

The Securities and Exchange Commission (SEC) provides the Action Lookup tool that you can use to see if the SEC or a court has issued enforcement actions against a prospective broker.

Global Watchlist Search

Since the world has become increasingly connected, many applicants might have worked, lived, or studied in other countries.

For prospective stockbrokers who have lived or worked in other countries, it’s a good idea to complete a global watchlist search.

This type of search checks information sources in other countries to identify individuals who have committed criminal offenses, have engaged in suspected criminal activity, committed significant acts of fraud, and have other red flags that should preclude employment.

A few types of checks that might be included in a global watchlist check for a stockbroker are detailed below.

Interpol Red Notice List

Interpol maintains a red notice list of individuals that are wanted for questioning by law enforcement officials in different countries.

If an individual appears on the red notice list, it might indicate the individual should be investigated further before hiring them.

European Union Consolidated Financial Sanctions List

The European Union (EU) consolidated financial sanctions list includes individuals and organizations that have received financial sanctions and/or have had their assets frozen by the EU.

U.S. Bureau of Industry and Security (BIS) Denied Persons List

The U.S. Bureau of Industry and Security (BIS) maintains a list of individuals who have been denied export privileges.

Dow Jones Watchlist

The Dow Jones Watchlist is a database of individuals who have engaged in international money laundering, have been sanctioned by regulatory authorities, have had adverse media exposure, or who are politically exposed individuals.

Consolidated Canadian Autonomous Sanctions List

The Consolidated Canadian Autonomous Sanctions List is a database of individuals and entities that have been sanctioned, excluded, or debarred by various agencies in Canada.

How to Conduct a Background Check on a Stockbroker

As a registered firm, you are required to verify the information submitted to FINRA on Form U4 for a prospective stockbroker.

Employers can choose to do this in one of two ways, including attempting a do-it-yourself process or partnering with a reliable third-party provider like iprospectcheck.

1. Do-It-Yourself

Some employers choose to try to verify the background information reported by stockbrokers by trying a do-it-yourself approach.

They might submit information requests to numerous agencies, call the stockbroker’s former employers, check sanctions databases online, and check with licensing boards.

Pros

• Might be free other than fees charged by some agencies for information

Cons

• Risk of substantial penalties from the SEC and FINRA if the information is not found
• Potential negligent hiring liability risks
• Can be time-consuming and labor-intensive
• Might be unable to access critical information sources
• Potential for mixing up people with similar names

2. Partnering With iprospectcheck

Because of the risks registered firms face with hiring disqualified brokers, most employers choose to partner with professional screening services like iprospectcheck to conduct stockbroker background checks.

Pros

• Leverage access to resources to confirm all information reported by prospective stockbrokers and identify unreported information
• Reduced risk of regulatory penalties and negligent hiring liability
• Multiple identity verification tools to confirm the records match the individual being searched
• Complies with all relevant regulations and laws, including the FCRA and others
• Quick turnaround times

Cons

• Fees, but they are affordable

Important Laws to Consider

Registered investment firms and stockbrokers are stringently regulated and must comply with several important laws.

FINRA Rule 3110(e)

Registered firms must verify the information stockbrokers report on Form U4.

Under Rule 3110(e), registered firms must investigate and verify the following information:

• Character
• Business reputation
• Qualifications
• Experience
• Background information
• Information reported on Form U4, including information about criminal history, bankruptcies, liens, and civil judgments

After investigating and confirming this information, registered firms must sign a certification attesting to the accuracy of the information on the form before

FINRA Regulatory Notice 15-05

FINRA Regulatory Notice 15-05 provides that registered brokerage firms must investigate the following things:

• All disclosures and information reported on Form U4
• Fingerprint-based background check
• Central Registry Depository (CRD) search results

FINRA Regulatory Notice 07-55

Under FINRA Regulatory Notice 07-55, the scope of the background checks member firms must perform is not limited.

Instead, employers must obtain all information that is necessary for them to fully investigate a potential stockbroker’s character, reputation, experience, and qualifications.

Fair Credit Reporting Act (FCRA)

Stockbroker background checks must comply with the Fair Credit Reporting Act (FCRA).

This law protects consumer privacy and applies to both consumer reporting agencies (CRAs) that conduct background checks and the employers who obtain them.

Under the FCRA, CRAs are restricted from reporting the following information for jobs paying less than $75,000 per year when it is more than seven years old:

• Paid liens
• Civil judgments
• Chapter 13 bankruptcies (10 years for Chapter 7 bankruptcies)
• Arrests that didn’t culminate in convictions
• Civil lawsuits

Since most stockbroker positions pay more than $75,000 per year, these restrictions might not apply.

Conviction information is unrestricted under the FCRA and can be reported regardless of age.

However, there might be state laws that restrict how far back conviction information can be reported.

The FCRA requires employers to disclose they conduct background checks and obtain the written authorization of their applicants before conducting them.

If a background check report reveals negative information about an applicant, the employer must complete the steps of the adverse action process before making the final decision not to hire them.

Fair Chance to Compete for Jobs Act

The Fair Chance to Compete for Jobs Act applies to government agencies and employers that contract with the federal government.

If your firm has federal contracts, this law prohibits you from conducting a criminal background check until after you have extended a conditional job offer to an applicant.

Title VII of the Civil Rights Act of 1964

Title VII of the Civil Rights Act of 1964 is the most important federal anti-discrimination law.

This law applies to employers when they conduct background checks. The law is enforced by the Equal Employment Opportunity Commission (EEOC), which has provided guidance to employers that they should individually assess criminal record information as it relates to the position for which an applicant is being considered before denying employment.

Get a Stockbroker Background Check with iprospectcheck Today

If you are looking to hire stockbrokers for your firm, you must ensure you comply with all of your regulatory requirements when conducting background checks.

Failing to thoroughly investigate the information reported by candidates could result in significant penalties and potential liability.

At iprospectcheck, we conduct comprehensive stockbroker background checks for registered investment firms in all 50 states.

Contact us today to learn more about our background screening services or to receive a free quote: (888) 509-1979

DISCLAIMER: The resources provided here are for educational purposes only and do not constitute legal advice. Consult your counsel if you have legal questions related to your specific practices and compliance with applicable laws.