BrokerCheck

Beware of loopholes in reporting on securities brokers

When considering the track record of a securities broker or dealer, investors should be cognizant of loopholes in background reporting.

The Financial Industry Regulatory Authority (FINRA) oversees the regulation of brokers and operates BrokerCheck, an online database that contains disciplinary records of registered brokers. But a review by the Wall Street Journal found that BrokerCheck is sorely lacking a wealth of information about registered brokers, some of which can be found in the records of state regulators. At least 38,400 brokers have regulatory or financial red flags that appear only on state records, according to the WSJ’s investigation; of those brokers, at least 19,000 had clean BrokerCheck records. One significant area omitted by FINRA: internal reviews.

The WSJ identified 4,346 brokers with one or more internal reviews reported on their state records but not on BrokerCheck. Other regulatory red flags not spotted on FINRA’s database: personal bankruptcies filed more than 10 years ago, judgments and liens that have been satisfied, and certain employment terminations.

FINRA’s records do include complaints against brokers, regulatory actions, terminations for cause, and personal bankruptcies filed within the last decade, which the agency says is consistent with the Fair Credit Reporting Act. But in light of the gaps – and a proposal from FINRA to the Securities and Exchange Commission to expand the obligations of financial institutions with regard to the background screening of applicants (https://scherzer.co/sec-considers-background-check-rule-proposed-by-finra/) – investors should consider checking state regulatory records to form a more complete picture of a broker’s history.

In response to the WSJ’s inquiry, FINRA launched a review of its database and said the agency is studying the current rules about the information disclosed on BrokerCheck. The agency is also attempting to patch a separate loophole by coordinating its efforts with state insurance regulators. Following reports that insurance and securities regulators struggle to share data – and that individuals take advantage of the gap by continuing to sell insurance products despite losing a securities license, for example – FINRA vowed to take action. Beginning this month, the agency said it will provide a monthly report of its disciplinary actions against securities brokers not only to state securities regulators but state insurance regulators as well.

January 29th, 2015|Educational Series|

FINRA wants to increase awareness of its BrokerCheck and make more information public

FINRA’s online investor tool for researching the professional backgrounds of firms and brokers, the BrokerCheck, is accessible to all members of the public from the front page of its website. In a revised proposal, which includes changes made in response to comments regarding a prior proposal to amend FINRA Rule 2267 (Investor Education and Protection), firms would be required to include a readily apparent reference and hyperlink to the BrokerCheck on each website that is available to retail investors, and in online retail communications with the public that include a professional profile of, or contact information for, an associated person, subject to specified conditions and exceptions.

FINRA is also seeking comments (until September 2, 2014) on a proposal to make publicly available, through FINRA’s website, a repository of Form 211 information. Firms are required to complete this form to demonstrate compliance with the specific information review requirements under SEA Rule 15c2-11 prior to initiating a quotation in a non-exchange-listed security.

July 9th, 2014|Educational Series|

FINRA will make more information about brokers and former brokers available to the public

On July 13, 2010, the Financial Industry Regulatory Authority (FINRA) announced that it will be implementing changes to its free online BrokerCheck service. With recent approval by the Securities & Exchange Commission, the amount of information available to the public about current and former securities brokers will expand significantly in the coming months, including the number of customer complaints reported publicly. The public disclosure period for the full record of a broker who leaves the industry will be extended from two years to 10 years, and certain information, such as criminal convictions and selected civil injunctive actions and arbitration awards, will be on record permanently. The changes will also formalize a process for current and former brokers to dispute or update the information disclosed through BrokerCheck.

“This additional information will benefit investors who are considering whether to conduct or continue to conduct business with a particular securities firm or broker,” said FINRA chairman and CEO Rick Ketchum. “Just as important, it will provide valuable information about persons who have left the securities industry, often not of their own accord, and who have established themselves in other segments of the financial services industry and can still cause great harm to the investing public.”

July 22nd, 2010|Educational Series|
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