More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
Richard Ketchum, CEO of the Financial Industry Regulatory Authority, has until Jan. 6 to tell Sens. Jack Reed, D-R.I., and Chuck Grassley, R-Iowa, if FINRA plans to adopt any of the measures the Public Investors Arbitration Bar Association (PIABA) recommended regarding FINRA’s expungement policy.
The PIABA study, released in mid-October, raised concerns about the number of times investor complaints may be expunged, or removed, from publicly available broker records maintained on FINRA’s BrokerCheck.
Expungement relief was granted in 96.9% of cases from May 2009 through December 2011, according to the study.
The two senators told Ketchum in their letter that as the PIABA study indicates, the BrokerCheck system, which FINRA says should be the first resource investors turn to when choosing whether to do business a particular firm or individual, “may not enable investors to easily obtain all the information necessary to determine whether to hire a particular FINRA-registered broker.”
Reed and Grassley told Ketchum that they share FINRA’s view that “expungement is an extraordinary remedy that should be granted only under appropriate circumstances,” and that it should be permitted “only when it has no meaningful investor protection or regulatory value.”
However, they said, “we believe that meaningful investor protection includes the disclosure of whether a customer dispute was settled. Not just for transparency sake, but also to help prospective investors make informed decisions about which individuals or firms with whom to do business.”
Reed and Grassley asked Ketchum to not only “explain whether and why or why not” FINRA intends to adopt PIABA’s recommendations that were laid out in its report, but to also provide the number of instances in which FINRA has questioned or challenged the provision of expungement relief and a detailed description of the circumstances of each case, along with any draft legislative language that would be necessary to provide FINRA with the authority to ensure that expungment relief is provided “only when it has no meaningful investor protection or regulatory value,” if it does not believe such authority already exists.
PIABA’s report suggested FINRA take the following steps:
- Change the procedures applicable to motions for expungement relief and play a more active role in arbitrators’ rulings on those motions.
- Review and critically assess all motions for expungement relief, particularly those made in cases resolved by settlement.
- Review and critically assess settlement agreements. A proposed rule change should include the requirement that the hearing on any motion for expungement relief be scheduled no sooner than 60 days after service of the motion on the customer and FINRA. In cases resolved by settlement, FINRA should require respondents to provide to FINRA the settlement agreement along with the motion for expungement relief.
Check out these related stories on ThinkAdvisor: