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FINRA Update: BrokerCheck, Arbitrator Classification, and Expungement

The FINRA Board of Governors has accepted several rule proposals that will now make their way to the Securities and Exchange Commission (“SEC”) for review, public comment and final approval.

BrokerCheck FINRA maintains the BrokerCheck database which contains the professional backgrounds of stock brokers, brokerage firms, and investment advisers. BrokerCheck is a free tool to help investors when deciding whether to do business or continue to do business with a particular firm or individual. In addition to information concerning current and past employment, it also reflects the firm/individual’s licensing status, and any reported regulatory, customer dispute, criminal or other matters.

The FINRA Board approved a revised amendment to FINRA Rule 2210 (Communications With the Public) that would require brokerage firms to include an obvious link to BrokerCheck on any of the firm’s websites that are available to public investors. The proposal specifically exempted communications in e-mails and those posted on interactive electronic forums such as Twitter.

A link to BrokerCheck can be found here.

Arbitrator Classification The Board authorized FINRA to submit proposed amendments to the Customer and Industry Codes of Arbitration Procedure to the SEC for approval. The proposed amendments would expand the definition of non-public arbitrators to include attorneys who devote a “significant part of their business” to representing investors, but the attorneys could be considered public arbitrators after a cooling off period. It also states that individuals who were employed in the securities industry for any period of time would always be considered non-public arbitrators.

Expungement of Customer Disputes Proposed FINRA Rule 2081 (Prohibited Conditions Relating to Expungement of Customer Dispute Information) is also headed to the SEC for approval. Currently, FINRA Rule 2080 states that customer dispute information can only be expunged from a broker’s BrokerCheck record if (A) the claim, allegation or information is factually impossible or clearly erroneous; (B) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or (C) the claim, allegation or information is false.

In October 2013, the Public Investors Arbitration Bar Association (“PIABA”) published its findings that, between January 2007 and May 2009, expungement was granted in 89 percent of settled FINRA cases. This prompted a bi-partisan inquiry by Senators Jack Reed and Charles Grassley to FINRA seeking more information about the frequency of expungement in resolved FINRA cases. The new rule approved by the FINRA Board would prohibit brokerage firms and stock brokers from conditioning settlements on an agreement not to oppose a request for expungement of the case from the stock broker’s BrokerCheck record.

Business Litigation | False Claims Act & Whistle-blower Cases

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