The Financial Industry Regulatory Authority’s BrokerCheck is full of holes and deletes crucial information about brokers’ backgrounds — including criminal records — despite the fact that such information is available from many state securities agencies operating under robust public records laws, according to a report released Thursday by the Public Investors Arbitration Bar Association (PIABA).
PIABA, a group of attorneys who represent investors in claims against brokers, states in its report that the extent of omitted “red flag” background information in BrokerCheck is “so serious that unwitting investors relying on the online database may very well select brokers with whom they would not do business if they had access to the more complete picture available to FINRA but now being hidden.”
PIABA argues that FINRA maintains the Central Registration Depository (CRD) database — a comprehensive database of broker information — on its behalf and on behalf of state securities agencies, which means that BrokerCheck and the states draw on the same pool of information. “FINRA promotes BrokerCheck as a major resource for investors. States also make available information from CRD records, but have not generally invested the same kind of time and effort in publicizing the availability of the often more complete information,” the report states.
PIABA calls on FINRA to ensure that BrokerCheck disclosures “be made consistent with the more complete reporting provided by state securities agencies.”
Jason Doss, PIABA’s president, said in releasing the report that “all investors should be able to obtain complete and consistent information about brokers. Period.”
“The quality of the disclosure you get about brokers should not depend on which state you live in. There is no rational basis for FINRA to hide key ‘red flag’ information that investors in some states can get from state-level agencies.”
Doss added that given that FINRA “has failed repeatedly to take action to increase the disclosures in BrokerCheck, Congress and the SEC need to compel them to do so if necessary.”
But FINRA responded in a statement that “while the [BrokerCheck] system may not be perfect, we do have to make determinations on what information about registered representatives is appropriate to release, while at the same time balancing fairness rather than ignoring it.”
In fact, said FINRA, “more than 75% of state securities regulators refer investors to BrokerCheck from their websites. FINRA has committed considerable resources and made significant enhancements to BrokerCheck, particularly over the last five years, to create a more user-friendly interface that allows investors to quickly access and intuitively understand the professional background of investment professionals.”