A proposal by the Financial Industry Regulatory Authority, Inc. (FINRA) to increase the release of publically-available information about disciplined brokers has been approved by the Securities and Exchange Commission (SEC). The measure assures the release of copies of disciplinary complaints and decisions on actions taken against a broker or a firm by FINRA, a disclosure that up until now has only been described in summary on FINRA’s BrokerCheck online research tool using information from U4 form filings. FINRA can now disclose more comprehensive data on its online disciplinary action program and in monthly notices without redaction.
As in most proposals passed by FINRA, this issue is wrought with fervent support and criticism. Those on the positive end of the ruling, including the SEC, state that the proposal will allow investors to be better informed, and allow the agency to provide greater transparency on their disciplinary maneuvers against a broker or firm. A cautious supporter of the ruling, Kenneth Klabunde of the City Securities Corp., believes that the transparency benefits of this extra disclosure may not be fully known until FINRA publishes its first monthly notice post-proposal approval, while others argue that the inclusion of disciplinary complaints by FINRA may damage firms while investigations are still underway. Of particular note by opponents is FINRA’s continuation of the release of dismissed and withdrawn complaints, an action already implemented on the BrokerCheck website. As FINRA decides on the effective date of the rule, individual brokers and firms should thoroughly evaluate any past or present disciplinary action or complaint brought against them by FINRA, in order to mitigate potential risks of such a disclosure in the future.
For more information, or for assistance on other compliance topics, please contact us at (619) 278-0020 to schedule a consultation.