February 13, 2014

FINRA OKs Plans on BrokerCheck Link, Expungement and Arbitrator Definition

The three proposals must now go to the SEC for review, public comment and approval

FINRA CEO Richard Ketchum, left, with FSI CEO Dale Brown. FINRA CEO Richard Ketchum, left, with FSI CEO Dale Brown.

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The Financial Industry Regulatory Authority’s board on Thursday approved three rule proposals.

The first one would limit the number of times investor complaints may be expunged, or removed, from publicly available broker records maintained on FINRA’s BrokerCheck.

The board also authorized FINRA to seek comment on a revised proposal to require that firms that serve retail investors include a link to BrokerCheck on their websites. The proposal would not apply to email or text messages, a retail communication that is posted on an online interactive electronic forum (such as a message board, Twitter feed or chat room), or a directory or list of associated persons limited to names and contact information.

The third proposal would amend the customer and industry codes of arbitration procedure to refine and reorganize the definitions of “nonpublic” and “public” arbitrator. Among the changes include classifying individuals who worked in the financial industry for any duration as nonpublic arbitrators.

All of the rule proposals will be submitted to the Securities and Exchange Commission for review, public comment and approval.

Dave Bellaire, executive vice president and general counsel of the Financial Services Institute, said that FSI would review the new proposal on firms linking to BrokerCheck to see how "it addresses FSI’s previous comments." FSI, he said, "will continue working with FINRA to develop a workable solution for our members that also provides investors with access to BrokerCheck information."

The rule proposal addressing expungement of brokers’ black marks states that “firms and associated persons would be prohibited from conditioning settlements of customer disputes on, or otherwise compensating customers for, an agreement not to oppose a request to expunge information from an associated person’s Central Registration Depository (CRD) record.”

FINRA’s board says the proposal is designed to help ensure that the CRD system continues to contain information that is critical to investor protection.

“We continually make improvements to the arbitration and expungement process to further enhance investor protections,” said FINRA chairman and CEO Richard Ketchum, in announcing the board approvals. “FINRA feels strongly that expungement of customer dispute information shouldn’t be ‘bargained for’ through settlement negotiations or otherwise.”

FINRA operates the CRD system, which is an online registration and licensing system containing information on members and associated persons, including personal information, registration and employment history, as well as disclosure information such as criminal matters, regulatory and disciplinary actions, civil judicial actions and information relating to customer disputes.

Much of the information in that system is available to investors through BrokerCheck.

As FINRA explains, brokers who wish to have customer dispute information removed from the CRD system and, thereby, from BrokerCheck, must obtain a court order directing expungement or confirming an arbitration award containing expungement relief.

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Check out ‘Alarming’ Number of Broker Arbitration Records Wiped Clean: Study on ThinkAdvisor.

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