A couple of events caught my attention this week and, since they are related, I thought I’d address them together.
On Monday, the SEC announced a proposed rule change to FINRA Rule 8312, the FINRA BrokerCheck Disclosure Rule. Rule 8312 permits FINRA to disclose certain information on BrokerCheck about registered individuals. As many of you are intimately aware, BrokerCheck reports information on a registered individual that is included in that person’s Forms U-4, U-5, and U-6. The information includes regulatory complaints and customer disputes, as well as the resolution of those matters.
Under the current version of Rule 8312(d)(5), FINRA is not allowed to publish on BrokerCheck information disclosed in a registered person’s Form U-5 until 15 days have elapsed following the filing of the U-5. The idea behind this cooling off period is to allow registered persons sufficient time to address and comment on the information disclosed on the U-5, such as the Firm’s stated reason for termination.
Apparently, 15 days is too much time, though. The new proposal would reduce that time period from 15 days to a mere three days. FINRA says it “is concerned that the length of the current waiting period may provide, for an extended period of time, an incomplete picture of a broker’s disciplinary history if an investor reviewed a broker’s BrokerCheck report during the waiting period.” If you haven’t heard the public calling for this information to be published sooner, you aren’t alone – unless, of course, you read “public” as the Public Investors Arbitration Bar Association (PIABA). PIABA regularly issues press releases, ostensibly on behalf of the public, suggesting FINRA is not doing enough to provide information to the public. But, as we’ve written previously in this blog (Problems with Registration of Registered Reps, Part 1: Does Anyone Actually use BrokerCheck?), the idea that the public is clamoring or even using BrokerCheck doesn’t seem grounded in reality. Nonetheless, FINRA, in typical reactionary form, is attempting to address an illusory problem.
What’s the takeaway? If this proposed rule change happens, registered persons must be prepared to move expeditiously to ensure that his/her comment is properly reflected on BrokerCheck. And be happy it’s not worse. At least a person still has the ability to provide a comment.
Wait, never mind. Forget I said anything. I don’t want FINRA getting that idea. Moving right along…
In other news, apparently, it’s also still much too easy to obtain expungement removing frivolous customer complaints from one’s CRD record. To address this ghastly situation, the FINRA Board of Governors voted this week to propose an amendment to the Code of Arbitration Procedure formally codifying what has been, up until now, merely “guidance” provided to arbitrators by FINRA Dispute Resolution on how they should evaluate requests for expungement. FINRA has provided extensive training to its arbitrators and told them repeatedly and emphatically to treat expungement as an “extraordinary” remedy. We’ve often wondered where this “extraordinary” standard came from, as the word itself doesn’t appear in any specific FINRA Rule or Code section concerning expungement. If it seems like FINRA merely made up a standard, it’s because, well, they pretty much did. Perhaps this proposed amendment is a way to help FINRA get back over its skis on this issue.
Regardless, it’s safe to say that the expungement process isn’t going to get any easier in the coming months and years. Arbitration panels, which have already been repeatedly admonished by FINRA not to grant expungement requests readily, are only going to be more critical of such requests once this rule is approved by the SEC. And given the fact it takes so little for a mark to be placed on a registered person’s record, that’s a shame.