Female tax inspector looking at corporate financial documents with magnifying glass

To help investors steer clear of shady brokerage firms, the U.S. Financial Industry Regulatory Authority Inc. (FINRA) will flag these kinds of firms on its online database, BrokerCheck.

Last year, the industry self-regulatory organization began to identify “restricted firms” in an effort to help protect investors from, and address the risks posed by, firms with “a significant history of misconduct.”

Firms defined as “restricted” face added conditions on their operations. FINRA said the initiative is also intended to provide an incentive for firms to improve their behaviour to avoid the restricted designation.

As of June 1, FINRA will disclose whether a current or former firm is currently designated as a “restricted firm” on the BrokerCheck system.

In a notice detailing the new rule, FINRA said releasing information about restricted firms “will alert investors to research more carefully the background of the firm.”

“It also will create additional incentives for firms with a significant history of misconduct to change behaviours and activities to reduce risk,” FINRA added.