[ by Howard Haykin ]

FINRA proposes to amend its BrokerCheck Disclosure rule in order to permanently make available information pertaining to dismissals effected pursuant to settlement agreements arising out of certain cases involving civil action.  The change would affect FINRA Rule 8312(f) and would related to current and former members and associated persons who were the subject of an investment-related civil action brought by a state or foreign financial regulatory authority.  Schedule A to the FINRA By-Laws also would be amended to establish a fee for data downloads from BrokerCheck for commercial users.

If and when the SEC approves the rule change, FINRA will announce the effective date of the proposed rule change in a Regulatory Notice that would be published within 60 days following Commission approval.  An effective date would fall within 180 days following publication of such Regulatory Notice. 

Background Information.    FINRA established BrokerCheck in 1988 - then known as the Public Disclosure Program - to provide the public with information on the professional background, business practices, and conduct of FINRA-member firms and their associated persons.  The information is derived from the Central Registration Depository (“CRD”),  the securities industry online registration and licensing database. 

FINRA-member firms, their associated persons and regulators report information to the CRD system via the uniform registration forms.  In January 2011, SEC staff released its Study and Recommendations on  Improved Investor Access to Registration Information About Investment Advisers and Broker-Dealers as mandated by the Dodd-Frank Act.  The Study contains 4 recommendations for improving investor access to registration information through BrokerCheck and the SEC's Investment Adviser Public Disclosure ("IAPD") database. 

• FINRA implemented 3 "near-term" recommendations in May 2012.
• A 4th recomendation - 'intermediate-term” - involves analyzing the feasibility and advisability of expanding the information available through BrokerCheck, as well as the method and format that BrokerCheck information is displayed. 

This last recommendation prompted FINRA to initiate a thorough review of BrokerCheck - that included the release of FINRA Regulatory Notice 12-10 in February 2012, in which FINRA requested comments on ways to facilitate and increase investor use of BrokerCheck information.   FINRA also engaged the services of a market research consultant, who conducted focus groups and surveyed investors throughout the country to obtain their opinions on the BrokerCheck program. 

It is based on these findings that FINRA now proposes 2 changes to FINRA Rule 8312, and a related amendment to
Schedule A.

Expanding the Disclosure Period for Certain Settled Civil Actions.   Information generally is made available on current or former members, and current associated persons and persons who were associated with a member within the preceding 10 years.  Rule 8312(c)(1) requires that BrokerCheck ly makes available information about those former associated persons who have not been associated with a member within the preceding 10 years, and: 

(A) at some point in time was subject to a final regulatory action, or

(B) were registered on or after 8/16/99 and were 

(i) convicted of or pled guilty or nolo contendere to a crime;

(ii) the subject of a civil injunction in connection with investment-related activity or a civil court finding of involvement in a violation of any investment-related statute or regulation (“Civil Judicial Disclosures”); or,

(iii) named as a respondent or defendant in an investment-related arbitration or civil litigation which alleged that the person was involved in a sales practice violation and which resulted in an arbitration award or civil judgment against the person.

As proposed, Rule 8312(c)(1)(B)(ii) would expand the categories of Civil Judicial Disclosures that are permanently included in BrokerCheck.  Specifically, information would be made permanently available on former associated persons who were registered on or after 8/16/99 and who have been the subject of an investment- related civil action brought by a state or foreign financial regulatory authority that was dismissed pursuant to a settlement agreement, as reported to the CRD system via a uniform registration form.  

FINRA believes that these settled civil actions should be permanently on record in BrokerCheck because they may involve significant events or considerable undertakings on the part of the subject individual.  As such, the proposed change would provide the public with additional access to such relevant and important information about formerly registered persons who, although no longer in the securities industry in a registered capacity, may work in other investment-related industries or may seek to attain other positions of trust with potential investors and about whom investors may wish to learn relevant information.

The rule filing concludes with a discussion on Data Downloads of BrokerCheck Information.  

For further details on Data Downloads, or other aspect to the proposed amendments, go to:   [FINRA Rule Filing 13-7, 1/24/13].