Sen. Elizabeth Warren, D-Mass., told Financial Industry Regulatory Authority CEO Robert Cook on Thursday that the broker-dealer self-regulator must ensure that any revamped broker expungement rules end up being tougher, as broker expungements “are often associated with broker misconduct” and recidivism.
As FINRA continues to consider changes to its expungement rules, Warren, who’s running for president, pointed to recent research “highlighting the need for smart broker expungement rules that ensure the availability of complete and transparent information about brokers.”
In her Thursday letter to Cook, Warren cited a recent Stanford analysis of FINRA expungement records, which found that “expungement attempts are most often successful yet are often associated with wrongdoing.”
Of the roughly 6,700 expungement attempts that took place between 2007 and 2016, 70% were successful, the study found. Said Warren: The study stated that “Successful … and unsuccessful expungement attempts” by brokers “are a significant predictor of future misconduct,” and that “successful expungements increase recidivism.”
The study “suggests that FINRA’s current method of assessing expungement requests — which approves the vast majority of expungement requests — is failing to safeguard information needed for investor protection,” said Warren in her letter. “Given FINRA’s crucial role in promoting safe markets and regulating the securities industry, it is of utmost importance that the organization consider the impact of broker expungement on the future misconduct of industry brokers.”
Warren told Cook that it’s of “utmost importance” that FINRA consider “the impact of broker expungement on the future misconduct of industry brokers,” and asked him to answer six questions by April 4.
FINRA says it has received the letter and is “working to respond accordingly.”
Warren queried Cook on when FINRA expects to submit its new expungement regulations (Regulatory Notice 17-42) to the Securities and Exchange Commission for approval, and asked whether FINRA considered disclosing broker expungement attempts on BrokerCheck or in the Central Registration Depository, or CRD, which is central licensing and registration system for the U.S. securities industry.
As laid out in Regulatory Notice 17-42, FINRA proposes to establish a roster of arbitrators with additional training and specific backgrounds or experience from which a panel would be selected to decide an associated person’s request for expungement of customer dispute information.
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