Broker-dealer regulator FINRA has sent out a request for comment on potential changes to BrokerCheck, including the addition of new information as suggested by the SEC.
New information FINRA is exploring adding to the system could include the reason for and comments related to a broker’s termination as well as scores on industry qualification exams. FINRA is also requesting industry input on whether it should provide BrokerCheck information to for-profit companies for commercial use. The comment period ends April 6.
FINRA set up the BrokerCheck program (under a different name) in 1988. The system provides investors and the public with information on the professional background, business practices and conduct of FINRA member firms, as well as individuals associated with those firms.
Over the years, FINRA has expanded the information available on BrokerCheck and made it easier to access. Currently, investors can see registrations brokers hold and the examinations they have passed, as well as disclosure information relating to criminal, regulatory, customer dispute, termination and financial matters. This information can be found on both current and former FINRA-registered firms and brokers.
FINRA noted in its request for comment that while until recently BrokerCheck was the only such online tool provided by a regulator, in 2010 the SEC expanded its Investment Advisor Public Disclosure database to include information on individual investment advisor representatives as well as investment advisor firms.
In January 2011, the SEC released its findings and recommendations from a study on ways to improve investor access to investment advisor and broker-dealer information. This study was done as required by a section of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Three near-term recommendations will be implemented before the July 2012 deadline to do so, according to FINRA’s regulatory notice, and these are: to unify search returns for BrokerCheck and the IAPD databases; to add the ability to search BrokerCheck by zip code or other location indicator; and to add educational content to BrokerCheck, defining terms that might be unfamiliar to investors.
In addition to these near-term recommendations, the SEC recommended that over a slightly longer horizon FINRA should look into adding the additional information on individual brokers (such as test scores and reasons for or comments about a broker’s termination).
“This push for a more public disclosure is in keeping with FINRA’s recent expansion of BrokerCheck and the coordinated regulatory push to leave few escape hatches for registered reps who perhaps shouldn’t be in the industry,” says Jennifer Woods Burke, a securities attorney and principal of CompliGuide, a compliance consulting firm. “Disclosure of information such as exam scores and business related terminations such as lack of production will provide public customers with a greater ability to vote with their feet and could in the end starve out representatives and, consequently, [also] firms that do not meet customer expectations.”
That said, there are reasons to be cautious about any expansion of public disclosures, Woods Burke adds. “From an identity theft perspective, the type of information FINRA is seeking to disclose could be easily abused. The sad reality is that if a registered representative’s identity is stolen, it can become an expensive and burdensome process to manage on a regulatory front,” she says.
“Right now we’re seeking comments, looking for both benefits and concerns people have on a number of topics that are relevant to the direction of the program” in light of the SEC’s study, according to Nancy Condon, a spokesperson for FINRA. The regulator will respond to individual concerns “at the appropriate time,” she adds.
Danielle Reed writes for Financial Planning.