The Financial Industry Regulatory Authority announced in mid-June a multi-pronged plan to overhaul its registration and disclosure programs, including its Central Registration Depository — the “backbone” of BrokerCheck — with the first phase being a new WebCRD interface. The new interface, which went into effect on June 30, is one in a series of changes that FINRA plans to make to the CRD system to “increase the utility and efficiency of the registration and disclosure process for firms, investors and regulators, as well as to reduce compliance costs for firms.”
FINRA said that it expects those changes to be complete in 2021.
Brad Bennett, former head of FINRA’s enforcement division, told IA that the initiative “will solidify BrokerCheck as the gold standard for disclosure on registered firms and representatives, and should provide significant efficiencies for FINRA’s member firms.” WebCRD, Bennett explained, “is only accessible by firms and regulators as it is designed to facilitate the processing of form filings, fingerprints, qualification exams and continuing education.”
FINRA’s new WebCRD interface is designed “to give more immediate responses to firms about potential red flags in their submissions,” Bennett said. The CRD is the central licensing and registration system that FINRA operates for the U.S. securities industry and its regulators and that “provides the backbone” of BrokerCheck, FINRA said.
“This important initiative will strengthen an essential function of the securities industry,” said Robert Cook, FINRA’s president and CEO, in a statement. “The transformation will allow FINRA to develop systems that help firms effectively maintain compliance programs and reduce compliance costs, while continuing to operate and enhance BrokerCheck as an essential tool for investors.”
FINRA notes that the broker-dealer self-regulator works closely with the Securities and Exchange Commission and the North American Securities Administrators Association on policy and program requirements for the disclosure systems.
“The CRD is an important tool for the financial services industry, regulators and investors,” said Joseph Borg, NASAA president and director of the Alabama Securities Commission, in a statement. “We applaud FINRA for undertaking this initiative to upgrade the system’s operations.”
Securities firms use the disclosure systems, FINRA states, to register and maintain the records of associated persons who operate within the securities industry, and investors use them — through BrokerCheck — to research the professional backgrounds of brokers and brokerage firms.
The overhaul of the CRD system is a result of FINRA360 — the top-to-bottom review of the broker-dealer self-regulator that Cook launched more than a year ago.
Brian Rubin, a partner at Eversheds Sutherland in Washington, said that the CRD overhaul is a great example of FINRA listening to comments received from member firms, reps and the public. “CRD and BrokerCheck are very important for regulators and investors, so FINRA should be commended for making improvements.”
The systems that support registration and disclosure requirements in the securities industry include the following: • CRD — maintains the registration records of close to 3,800 SEC-registered broker-dealers (more than 3,700 are member firms) and over 630,000 FINRA-registered professionals • Web CRD — the online registration system that allows the securities industry, federal and state regulators, and securities exchanges to interact with CRD • Investment Adviser Registration Depository (IARD) — the registration system for investment advisors and their federal and state regulators • Investment Advisor Public Disclosure (IAPD) — the public disclosure system for investment advisers • Private Fund Reporting Depository (PFRD) — the SEC private fund reporting system • BrokerCheck — a free online tool where investors research the professional backgrounds of brokers and brokerage firms, as well as investment advisor firms and advisors
Broker Background Checks As of July 9, FINRA’s new public records disclosure review process takes hold. The Cosgrove Law Group opined in a recent blog post that the stepped up review process will ease broker-dealers’ and reps’ public records search burden, at least somewhat.
The law firm noted FINRA’s plans to conduct a public records search within 15 calendar days from the date of an applicant’s Form U4 (Uniform Application for Securities Industry Registration or Transfer) and provide broker-dealers any information resulting from such a search if such information is different from what the applicant reported.
The additional records search — which Cosgrove notes will satisfy the requirement to perform a search of records for judgments, bankruptcies and liens — was billed by FINRA’s May 18 Information Notice as providing added benefit to member firms and registered persons.
FINRA stated in the notice that the change is likely to: “(1) reduce the costs to firms associated with conducting these public records checks, which often involve finding and hiring a vendor; (2) result in more timely reporting of disclosure information to the benefit of regulators, investors and firms; and (3) result in a significant reduction of late disclosure fees related to judgments and liens.”
Cosgrove notes that while the first and second benefits “seem like probable benefits to both the member firms and the registered persons,” benefit No. 3 “appears to be a stretch.” The burden “of these public records searches is real, especially to smaller broker-dealers,” the law firm states.
While FINRA taking over these search requirements “is a welcome change,” Cosgrove states, “firms and agents will still need to respond to and file any items that are found in these searches, but the searches themselves will no longer have to be performed in-house or by a third-party vendor for each registered hire.”
Also, firms and registered persons “are still required to report unsatisfied liens and judgments within 30 calendar days of learning of the event as long as the agent is registered and to report other activity, such as certain criminal matters per FINRA rules,” the law firm warns.
New FINRA Board Member Jim Nagengast, CEO of Securities America, and Shelley O’Connor, managing director and co-head of Morgan Stanley Wealth Management, and are in the running to fill the large firm governor’s seat on the FINRA’s board.
The self-regulator planned to elect Nagengast or O’Connor on June 28.
Nagengast told IA that he’s running for the open Large Firm seat “to give voice to the concerns and interests of independent, bank- and insurance-owned firms.”
It’s crucial, he continued, “for FINRA to have a board that is committed to making it easier for everyone across the country to have access to high quality, professional financial guidance, not just the high-net-worth investors in major metropolitan areas.”
The “key issues” FINRA needs to focus on “are continuing [to] make progress in enhancing transparency, especially around the rulemaking process, while promoting greater industry diversity,” he added.
O’Connor, who’s also chairwoman of Morgan Stanley Private Bank, is a member of the Morgan Stanley Operating Committee.
During her 30-year career at Morgan Stanley, O’Connor has held a succession of senior leadership positions, including head of field management for wealth management, with responsibility for the firm’s network of approximately 600 branches and 16,000 advisors, and as CEO of Morgan Stanley Private Bank.
Washington Bureau Chief Melanie Waddell can be reached at email@example.com.