The scarlet letter that a handful of brokerage firms have been able to hide may soon be visible for the public to see.

Under a rule change proposed by FINRA, firms required to record telephone conversations between reps and their customers due to the high number of brokers they hired from disciplined firms would have to disclose their status as a “taping firm” in BrokerCheck.

The amendment is part of a broad set of proposals to strengthen oversight of high-risk brokers.

“FINRA believes disclosing the status of a member firm as a taping firm through BrokerCheck will help inform investors of the heightened procedures required of the firm, which may incent the investors to research more carefully the background of a broker associated with the firm,” the regulator said in the rule change proposal.

Under the existing rule, firms that hire a specified percentage of registered reps from firms that were either expelled or whose licenses were revoked are required to establish, maintain, and enforce special written procedures for supervising the telemarketing activities of all its registered reps. In addition to recording all their telephone conversations with both existing and potential customers, taping firms must review the recordings, maintain appropriate records and file quarterly reports with FINRA.

Currently, FINRA will disclose whether a firm is a taping firm if someone calls BrokerCheck’s toll-free number.

The firms and other interested parties that commented on FINRA’s proposal were generally supportive of the rule change. PIABA and NASAA proposed that the disclosure be explained, with both expressing concerns that without explanation the disclosure would be meaningless to investors. NASAA suggested language for the disclosure.

“The whole purpose of the CRD system is to provide investors with information that could be helpful to them in making decisions on who to invest with and what resources are available if there are discrepancies,” said Jenice Malecki of New York City law firm Malecki Law.

The proposal was not totally without critics. Luxor Financial Group, a business development, compliance and consulting firm for broker dealers, blasted the rule change as “unconscionable,” saying it will disproportionately cause reputational damage to small firms.

“This will encourage a public perception that the firm and all registered representatives of that firm to be viewed negatively by association for behavior which had been perpetrated by another firm and not by the current firm for which the scarlet letter will now be attached to merely by taking in representatives through no fault of their own who are now guilty by past association and not of their own actions,” Luxor said in its comment letter.

Broker-dealer Network 1 Financial Securities raised similar concerns, saying that the perceived “guilt by association” is unfair to brokers, senior management and operations and compliance personnel at the firm with clean records.

There are currently 11 firms identified as disciplined firms, meaning they were either expelled or had their broker dealer registrations revoked for violations of sales practice rules within the past three years. One is identified as a taping firm, according to FINRA.

Firms that trigger the application of the taping requirement are afforded a one-time opportunity to adjust their staffing levels to fall below the prescribed threshold levels and thus avoid being designated a taping firm, FINRA said.

The regulator received 13 comment letters from broker-dealers, trade groups and other interested parties during the two-month comment period that ended June 29. It will consider the comments and then file the proposal with the SEC, it said.