FINRA's board of governors on Thursday approved a rule proposal that would impose new limits on financial advisors' ability to remove information about customer disputes from BrokerCheck, the regulator's online portal where investors can find information about a registrant's legal, regulatory and disciplinary history.
Under the proposed rule, firms and their associates would be barred from reaching settlements with customers who are conditioned on the agreement not to oppose a broker's request to expunge information from FINRA's Central Registration Depository, the database that feeds information to BrokerCheck.
The rule would also block registrants from offering customers other forms of compensation in exchange for not opposing expungement.
"We continually make improvements to the arbitration and expungement process to further enhance investor protections," FINRA CEO Richard Ketchum said in announcing the rule proposal. "FINRA feels strongly that expungement of customer dispute information shouldn't be 'bargained for' through settlement negotiations or otherwise."
The rule now heads to the SEC, which will review and seek comments from the public before determining whether to approve the measure.
ARBITRATION STUDY
The issue of expungements flared up late last year when the Public Investors Arbitration Bar Association published a study in which it evaluated more than 1,600 arbitration cases from 2007 through 2011. Of those, 89% resulted in expungement. That trend appeared to be escalating, as nearly 97% of the cases from mid-2009 through 2011 saw the black marks removed from brokers' records.
At the time, FINRA acknowledged that it had "serious concerns" with the expungement process, saying that it would work to improve training for arbitrators and emphasize the "importance of the integrity of the information in the CRD system."
OTHER MEASURES
In a statement, David Bellaire, executive vice president and general counsel at the Financial Services Institute, said the group would evaluate the proposal and "continue working with FINRA to develop a workable solution for our members that also provides investors with access to BrokerCheck information." In the past, FSI has advocated for protections for its members such as provisions to enable expungement in cases when an advisor was incorrectly identified in a complaint or the claim was shown to be unfounded.
FINRA's board also approved a proposal to block Wall Street veterans from serving as public arbitrators in investor disputes. Instead, individuals with industry experience could serve as non-public arbitrators, who are often involved in disputes between financial services practitioners.
FINRA also moved Thursday to seek comment on a proposal that would require registrants to place a link to BrokerCheck on their websites.
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