The SEC recently called upon FINRA to conduct a comprehensive review of its rules that allow brokers to erase potentially damaging information from their public records. The North American Securities Administrators Association, or NASAA, which I currently serve as president, strongly endorses such a review.
The SEC’s call was part of its approval on July 22 of FINRA Rule 2081 to prohibit brokers from requiring clients to agree to not oppose the removal or “expungement” of a damage claim as a condition of the claim’s settlement. (See ThinkAdvisor news article, SEC OKs FINRA Rule on Expungement of Broker Black Marks.)
This rule is a positive first step toward discouraging firms and their representatives from bargaining for the removal of potentially valuable regulatory information that should remain available to regulators, employers, customers and potential customers through the Central Registration Depository (CRD) and FINRA’s online BrokerCheck service.
Developed by NASAA and NASD (now FINRA), the CRD consolidated a paper-based licensing and regulatory process into a single, nationwide computerized registration and licensing database. It includes employment history information as well as regulatory and disciplinary actions. Information from the CRD is available to the public from state securities regulators or through BrokerCheck. A similar system, the Investment Adviser Registration Depository (IARD), contains information about registered investment advisors.
Expungement allows industry professionals to permanently remove customer complaint data from these systems. Although expungement is intended to be an extraordinary remedy reserved for the removal of information that has no regulatory value, requests are routinely granted in the arbitration context.