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FINRA Aims to Increase Investor Use of BrokerCheck Information

Thursday, February 23, 2012
Yoomi Lee | Bloomberg LawFINRA Regulatory Notice No. 12-10 (Feb. 2012) The Financial Industry Regulatory Authority (FINRA) issued a regulatory notice to request comment on ways to facilitate and increase investor use of BrokerCheck information. FINRA's request for comment is based on the Securities and Exchange Commission's (SEC) study and recommendations on improving investor access to investment adviser and broker-dealer registration information as required by Section 919B of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Specifically, FINRA requests comment on (1) the type of information available on BrokerCheck; (2) the report design, format, and content of the information; (3) how to increase investor awareness of BrokerCheck; and (4) commercial use of the information available on BrokerCheck.

BrokerCheck's Background

In 1988, FINRA established the BrokerCheck program to provide investors with information regarding the professional background, business practices, and conduct of FINRA member firms and their associated persons. FINRA noted that BrokerCheck allows investors to make informed choices about the individuals and firms with which they currently conduct or are considering conducting business. As such, FINRA stated that it regularly assesses the scope and necessity of the information BrokerCheck provides, and thus, has made numerous improvements to the program. For example, BrokerCheck reports are available instantly online and the amount of information available has increased as well. BrokerCheck also was the only regulator provided tool that enabled investors to check the background of financial service industry professionals until the SEC expanded its Investment Adviser Public Disclosure (IAPD) database to include information on investment adviser representatives in 2010.

BrokerCheck's Future

Dodd-Frank mandates that the SEC's recommendations be implemented within 18 months of the completion of the SEC's study, and FINRA must put them into effect before July 2012. In its study, the SEC made the following recommendations to improve investor access to registration information through BrokerCheck: (1) unify search returns for BrokerCheck and the IAPD databases; (2) add the ability to search BrokerCheck by a location indicator; and (3) add educational content to BrokerCheck, such as links and definitions of unfamiliar terms. Moreover, the SEC's study also included an intermediate term recommendation, to be addressed after the 18-month implementation period, for FINRA to continue to analyze the feasibility and advisability of expanding BrokerCheck to include additional information available on the Central Registration Depository, a database that stores and maintains information on member firms and their associated persons. As such, FINRA raised questions to seek input and comment from interested parties on how FINRA can best achieve these goals. — Information Displayed Currently, BrokerCheck provides information, including, among other things (1) registration and employment history; (2) industry examinations that the broker has passed; and (3) information regarding regulatory actions, customer complaints, and terminations. This information is available for 10 years after the broker has left the securities industry. The information, however, is available permanently in cases where a broker has been involved in certain disclosure events. FINRA seeks comment on whether changes should be made to the categories of information displayed and the length of time such information should be available on BrokerCheck. — Report Format FINRA also explained that BrokerCheck users are provided with a summary report for the requested broker or brokerage firm, and seeks comment on whether changes should be made to the design, format, or content of the report. — Investor Awareness Further, FINRA seeks comment on how to best increase investor awareness of BrokerCheck and whether changes should be made to FINRA Rule 2267 to further achieve this goal. — Commercial Use Finally, FINRA seeks comment on whether it should provide BrokerCheck information to for-profit companies for commercial use as these companies are contemplating or already have established websites or services that allow users to verify or obtain information regarding financial industry professionals. DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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