More On Legal & Compliancefrom The Advisor's Professional Library
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
Registered reps who are involved, but not named, in customer-initiated arbitration cases as “subjects of” allegations of sales practice violations may have a new means of seeking expungement of those allegations, if proposed new rules go into effect.
FINRA is seeking comment on those rules, which would provide express procedures to have such cases expunged once an arbitration is concluded. Presently, those instances in which those persons are named must be reported to the Central Registration Depository (CRD), just as in the case of customer complaints.
However, according to FINRA, “the Code of Arbitration Procedure for Customer Disputes (Customer Code) and the Code of Arbitration Procedure for Industry Disputes (Industry Code) … do not provide unnamed persons with express procedures to seek expungement of these types of allegations.” The proposed rules would remedy that.
An individual such as a registered representative of a FINRA firm who is not named as a respondent or defendant in an arbitration, but who could “be reasonably identified from the body of the arbitration claim” as being involved in one or more violations, currently has few choices for relief if he or she feels the allegations are unfounded, or if he feels he has been incorrectly identified as involved. He can:
- ask his current or former firm that is a party to the arbitration to request expungement on his behalf
- try to intervene in the arbitration
- file a new arbitration to request expungement relief and name the customer or firm as respondent.
These actions can all be unsatisfactory for a variety of reasons, says FINRA. Instead it has proposed a procedure to be put in place that allows the unnamed person to be granted expungement at the end of a customer-filed arbitration through the initiation of in re expungement proceedings.
The rules define the “unnamed person,” set up the framework for the in re expungement proceedings, provide for notification when a member firm reports to the CRD system that a person was the subject of a customer arbitration claim involving sales practice violations, and require the person to notify FINRA of his intent to seek expungement relief through the new system. Other forms of relief would be eliminated.
FINRA declined to comment on instances in which the new rule might apply to brokers and their firms, or the frequency with which such situations occur.
The comment period expires May 21.