JANUARY 27, 2014 • TED KNUTSON / FINANCIAL ADVISOR
The Financial Industry Regulatory Authority has disclosed it is working on a rule to bar the deletion of an investor’s complaint against a broker in the public records as a condition for a settlement between a complaining investor and a broker.
A letter from Finra Chairman and CEO Richard Ketchum, which made that statement and included a commitment to work with state securities regulators and other stakeholders to review the complaint expungement process, was released by Senators Charles Grassley (R-IA) and Jack Reed (D-RI) on Friday.
Grassley and Reed sounded the alarm in mid-December that too many complaints were being made secret too quickly in the wake of a Public Investors Arbitration Bar Association study that showed Finra arbitrators deleted 96.9 percent of investor complaints against brokers in cases where brokers sought the deletions from the agency’s Broker Check System from May 2009 through December 2011.
“It appears (Finra) is taking the problem seriously,” Grassley and Reed said in a press release.
Ketchum noted that while the percentage of public complaint removals sought by brokers was high, the number was actually small: 850 complaints deleted out of 17,635 arbitration grievances filed by investors during that period.
However, “any inappropriate reduction in the amount of broker disclosure to investors is of serious concern to Finra,” Ketchum said
He added it is appropriate to delete an investor complaint if an arbitrator finds the information is false or “otherwise has no meaningful investor protection or regulatory value”
Tuesday, January 28, 2014
Wednesday, January 15, 2014
Senators push for tighter expungement rules for brokers
A bipartisan pair of legislators wants to make it more difficult for investment professionals to wipe their disciplinary records clean
A bipartisan duo of U.S. senators Monday pushed Finra to provide new details on a process that allows brokers to sanitize their disciplinary records.
Sen. Jack Reed (D-R.I.) and Sen. Chuck Grassley (R-Iowa) also said Wall Street's industry-funded securities regulator should respond to criticisms that whitewashed BrokerCheck reports could mislead investors.
“We believe that meaningful investor protection includes the disclosure of whether a customer dispute was settled,” the senators wrote. “Not just for transparency sake, but also to help prospective investors make informed decisions about which individuals or firms with whom to do business.”
The letter reignited a debate over the Financial Industry Regulatory Authority Inc. system that allows brokers to petition to clean their public disciplinary reports, which was catalyzed most recently by a group of lawyers that represent investors. An October report by the Public Investors Arbitration Bar Association, found that Finra arbitrators granted “expungement” at least 90% of the time in the 1,625 cases in which the term was mentioned between 2007 and 2011.
PIABA recommended that Finra itself review requests to clean brokers' records and improve its training of the corps of volunteer arbitrators who currently decide when to grant such requests. PIABA also said Finra should ban settlements containing requirements that investors who file complaints agree to not oppose the expunging of brokers' records.
Touting their letter as being in the interest of “fair financial markets and transparency,” the senators asked Finra to respond by Jan. 6 to PIABA's recommendations. They proposed draft legislation to empower Finra to ensure that slate-swiping is limited and also asked for details on when and why brokers' records are expunged.
Finra previously has said it shares PIABA's concerns and is providing additional guidance to arbitrators and reviewing its other rules. In a statement provided by spokeswoman Nancy Condon, the regulatory body said it “looks forward to working with” the senators “to address the important issues raised today.”
Finra going after rogue brokers
Finra will be paying close attention to the customer accounts of high-risk brokers as they review firms' sales practices.
By InvestmentNews, January 12, 2014
In its annual letter to broker-dealers listing its examination priorities, Finra included many areas on which it has focused in past years, such as structured products, suitability of investment recommendations and conflicts of interest. A new — and welcome — area it is turning its attention to this year is rogue brokers.
Unfortunately, rogue brokers have been around for a long time. They are the brokers who skip from firm to firm, racking up investor complaints, arbitration awards and enforcement actions along the way.
The brokers depicted in the new Martin Scorsese film, “The Wolf of Wall Street,” were rogue brokers for sure, but there are many others who are not as flashy but whose misdeeds are often just as harmful. They hurt investors and the reputation of the firms they work for — although sometimes the firms themselves are just as guilty — and are a stain on the entire securities industry.
The Financial Industry Regulatory Authority Inc. has said that this year, it will do more to monitor and prevent these serial offenders from causing additional mischief as they leave one firm for another. In some cases, they have been fired for disciplinary problems. In other cases, they were working for a troubled broker-dealer that was forced to shut down and are looking for new employment.
Finra has put broker-dealers on notice that its examiners will be reviewing their due diligence on background checks for new hires, as well as the adequacy of supervision of high-risk brokers. Finra said it also will be paying close attention to the customer accounts of high-risk brokers as they review a firm's sales practices.
Since Finra has disclosed that it will have rogue brokers in its cross hairs, it behooves broker-dealers to make sure they are doing everything they can on the front end to not hire a problem employee. In the past, it sometimes has been hard to find out the exact circumstances of a broker's departure from a previous employer, because that employer did not want to be named in a defamation suit. That said, broker-dealers have to make sure they are getting all documentation pertinent to prospective employees' work histories before they are hired.
Now that Finra is taking steps to get rid of its bad apples, legislators and government regulators should start looking at ways to make sure the pipeline between the securities and insurance industries is being monitored more closely. In some cases, problem insurance brokers have been able to restart their careers at securities firms and vice versa.
InvestmentNews has documented several cases where stockbrokers have been barred from the securities industry by Finra or the Securities and Exchange Commission but have been able to retain their state insurance licenses. This gives them carte blanche to take advantage of investors and consumers in new ways that are just as devious as their past practices.
It would be good to know that once individuals have been thrown out of one industry, they cannot simply start again in a related business and hurt more people.
By InvestmentNews, January 12, 2014
In its annual letter to broker-dealers listing its examination priorities, Finra included many areas on which it has focused in past years, such as structured products, suitability of investment recommendations and conflicts of interest. A new — and welcome — area it is turning its attention to this year is rogue brokers.
Unfortunately, rogue brokers have been around for a long time. They are the brokers who skip from firm to firm, racking up investor complaints, arbitration awards and enforcement actions along the way.
The brokers depicted in the new Martin Scorsese film, “The Wolf of Wall Street,” were rogue brokers for sure, but there are many others who are not as flashy but whose misdeeds are often just as harmful. They hurt investors and the reputation of the firms they work for — although sometimes the firms themselves are just as guilty — and are a stain on the entire securities industry.
The Financial Industry Regulatory Authority Inc. has said that this year, it will do more to monitor and prevent these serial offenders from causing additional mischief as they leave one firm for another. In some cases, they have been fired for disciplinary problems. In other cases, they were working for a troubled broker-dealer that was forced to shut down and are looking for new employment.
Finra has put broker-dealers on notice that its examiners will be reviewing their due diligence on background checks for new hires, as well as the adequacy of supervision of high-risk brokers. Finra said it also will be paying close attention to the customer accounts of high-risk brokers as they review a firm's sales practices.
Since Finra has disclosed that it will have rogue brokers in its cross hairs, it behooves broker-dealers to make sure they are doing everything they can on the front end to not hire a problem employee. In the past, it sometimes has been hard to find out the exact circumstances of a broker's departure from a previous employer, because that employer did not want to be named in a defamation suit. That said, broker-dealers have to make sure they are getting all documentation pertinent to prospective employees' work histories before they are hired.
Now that Finra is taking steps to get rid of its bad apples, legislators and government regulators should start looking at ways to make sure the pipeline between the securities and insurance industries is being monitored more closely. In some cases, problem insurance brokers have been able to restart their careers at securities firms and vice versa.
InvestmentNews has documented several cases where stockbrokers have been barred from the securities industry by Finra or the Securities and Exchange Commission but have been able to retain their state insurance licenses. This gives them carte blanche to take advantage of investors and consumers in new ways that are just as devious as their past practices.
It would be good to know that once individuals have been thrown out of one industry, they cannot simply start again in a related business and hurt more people.
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