FINRA published Regulatory Notice 12-10 (the “Notice”) requesting comments on issues that may drastically alter BrokerCheck, including whether BrokerCheck information should be made available for commercial use by for-profit companies, whether BrokerCheck information should be presented in a format that would permit it to be available directly on the Internet when searching for a registered representative or member firm, and the scope of information that should be included in BrokerCheck.
BrokerCheck, established in 1988, provides investors and the public with information regarding FINRA member firms and their associated persons, including information found on the uniform registration forms reported to the Central Registration Depository (CRD). Since 2010, when the SEC expanded the Investment Adviser Public Disclosure (IAPD) database, there has been some overlap in the information BrokerCheck and IAPD make available, but also some notable differences, including the scope of information made available, the format in which the information is presented, and the manner in which individuals obtain information from the systems. With regard to the manner in which individuals access the information, a key difference is that while FINRA only allows BrokerCheck to be used for personal or professional use and prohibits attempts to gather BrokerCheck information with voluminous requests (such as automated data collection tools used by commercial companies), the SEC does neither with respect to IAPD.
FINRA’s request for comments regarding BrokerCheck was prompted by study recommendations released by the SEC in early 2011 that were aimed at improving investor access to information regarding investment advisers and broker-dealers, as required by Section 919B of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That study made three initial recommendations that FINRA plans to implement before the July 2012 deadline: (1) unifying search returns for BrokerCheck and the IAPD databases; (2) adding the ability to search BrokerCheck by ZIP Code or other location indicator; and (3) adding educational content to BrokerCheck, including links and definitions of terms that may be unfamiliar to investors. In the Notice, FINRA requests comments relating to only one of these initial recommendations — (3), how FINRA can add educational content to BrokerCheck. In addition, the study included two additional recommendations: that FINRA (1) examine the feasibility and desirability of expanding BrokerCheck to include additional information available in the CRD system (e.g., detailed information regarding the reasons for a registered representative’s termination, advisers’ scores on industry exams, and information formerly reportable in the CRD system even if it is no longer required to be reported); and (2) review the method and format of publishing BrokerCheck content. As discussed below, the Notice requests comments on both of these additional recommendations. These additional recommendations are to be addressed by FINRA after the July 2012 deadline for implementing the initial recommendations.
In light of the recommendations set forth in the SEC study, and guided by its goal of determining how to facilitate and increase the use of BrokerCheck information, the four areas specifically indentified by FINRA for comment are the following.
1) Commercial Use of BrokerCheck Information by For-Profit Companies
2) Strategies to Increase Investor Awareness of BrokerCheck
3) Information Displayed on BrokerCheck
4) BrokerCheck Report Design, Format and Content
FINRA is soliciting comments on its proposals for changes to BrokerCheck with the comment period ending April 6, 2012. There will likely be widespread interest on the part of registered representatives and member firms regarding a number of the items on which FINRA seeks comments, particularly the possibility of commercial use of BrokerCheck information by for-profit companies (which could use the information to generate ratings charts or scorecards, which may be based on the unproven allegations in pending complaints against registered representatives disclosed on BrokerCheck), whether BrokerCheck information should be presented in a format that would permit it to be available directly on the Internet when searching for a registered representative or member firm, and the scope of information (such as test scores and the reasons for termination from a prior firm), which should be included in BrokerCheck. The process is just beginning, but registered representatives and member firms would do well to comment early. After comments are received by FINRA, any proposed rule must be authorized for filing with the SEC by the FINRA Board of Governors and then approved by the SEC following publication for public comment in the Federal Register. FINRA Regulatory Notice 12-10, FINRA BrokerCheck (February 2012), which sets forth the details regarding how interested parties may submit their comments, is found at http://www.finra.org/Industry/Regulation/Notices/2012/P125622.
*This alert was co-authored by David Boch, Robert Buhlman and T. Peter R. Pound.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:Boch-David
This article was originally published by Bingham McCutchen LLP.