Imminent Changes to FINRA Rule 4530 and Recent Rule Proposal to Make BrokerCheck Available on Firm Websites

February 07, 2013

The Financial Industry Regulatory Authority (“FINRA”) recently filed two rule proposals related to FINRA Rules 4530 and 2267, respectively. The proposal to amend FINRA Rule 4530 received expedited approval by the United States Securities and Exchange Commission (“SEC”) and becomes effective on February 13, 2013. The changes, described below, are intended to reduce the need to report certain events to FINRA and provide for an alternative online option to make applicable document submissions. The second proposal suggests amendments to FINRA Rule 2267 and would require members to make available a link to FINRA’s BrokerCheck database on their websites.

Immediately Effective Change to FINRA Rule 4530

On January 14, 2013, FINRA filed a rule proposal for immediate effectiveness to amend Rule 4530 (Reporting Requirements).1 The SEC approved the proposal on January 18, 2013. As a result, the changes described below will become effective as of February 13, 2013.

In its relevant parts, FINRA Rule 4530 requires members to report to FINRA specified events and to provide FINRA with copies of certain documents. The proposed amendments provide modifications to the event reporting provisions in Rule 4530(a)(1). Namely, the amendments (1) provide a method to designate certain information disclosed in the Form U4 to satisfy corresponding FINRA Rule 4530(a)(1) reporting requirements and (2) provide an exception for the reporting of FINRA findings and regulatory actions. The amendments also allow firms the option of filing certain required documents under FINRA Rule 4530(f) online.

Under the proposed Form U4 designation process, a member now has the ability to designate that data supplied on a disclosure reporting page (“DRP”) of the Form U4 should be applied to satisfy applicable Rule 4530(a)(1) events. The changes will be effected in the Central Registration Depository (“CRD system”) through the use of checkboxes that a filer may use to designate that information reported on certain Form U4 DRPs also be applied to satisfy the corresponding Rule 4530 reporting requirement. The checkbox designations will be available on the following Form U4 DRPs: 1.) Criminal; 2.) Regulatory Action; 3.) Civil Judicial and 4.) Customer Complaint/Arbitration/Civil Litigation.

In addition, similar to the existing exception in Rule 4530(f) for any arbitration claim that is filed with FINRA Dispute Resolution, proposed Supplementary Material .10 provides an exception to the reporting requirements related to external findings under Rule 4530(a)(1)(A) and regulatory actions under Rules 4530(a)(1)(C) and (D), if the finding or action was brought by FINRA.

Lastly, the amendments provide an online option to submit to FINRA copies of certain criminal actions, civil complaints and arbitration claims required under Rule 4530(f). Currently, members have the option to file the required documents with FINRA either electronically via email or in paper form. Under this provision of the amendment, members can now submit copies of the documents through FINRA’s Firm Gateway system. Firms that do choose to file the documents online will also need to provide summary information regarding the documents such as the name and telephone number of a firm contact person and the name of the plaintiff or claimant.

Rule Proposal Regarding Firm’s Websites and BrokerCheck

On January 7, 2013, FINRA filed a rule proposal to amend Rule 2267 (Investor Education and Protection).2 FINRA’s rule proposal, which could affect the CRD system and its use to disclose certain information publicly, is designed to strengthen protections for investors by making it easier for them to research the backgrounds of firms and registered representatives. The rule proposal coincides with FINRA’s efforts during the past year to make its BrokerCheck database more readily available for investors who may be unaware of the existence of FINRA’s free online service.3 The rule, in part, would require firms’ websites to link to BrokerCheck thereby providing easier access to details such as regulatory sanctions and certain customer complaints involving a firm and its registered representatives. The links would connect not to the BrokerCheck home page, but directly to the disclosure reports for specific firms or individuals, thereby saving investors the hassle of searching for details on their own.

FINRA’s new proposal would require that firms’ websites include a prominent explanation of the BrokerCheck site. The rule would also apply to firm-related social media pages implying that every social media page (or posting) of a broker would require a link to that broker’s BrokerCheck disclosure. Currently, there is a comment period on this proposal through February 15, 2013.

FINRA members should be aware of the impending proposed rule and the possible requirements that may result. In addition, firms should continue to track developments as FINRA works to enhance and expand the role of BrokerCheck as a public resource.

*This alert was co-authored by Robert Buhlman, W. Hardy Callcott and Kenneth Ashton.


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1 See Securities and Exchange Commission Release No. 34-68701; File No. SR-FINRA-2013-006 (Jan. 18, 2013)
2 See Securities and Exchange Commission Release No. 34–68700; File No. SR–FINRA–2013–002 (Jan. 18, 2013)
3 See Regulatory Notice 12-10 (February 2012). In May 2012, FINRA imposed changes including a feature that lets investors search for brokers by entering geographic locations and ZIP codes. Previously, investors had to search for a specific adviser or a brokerage. Additionally, in September 2012, the FINRA Board of Governors met to consider, among other things, rule proposals to expand the information publicly available in BrokerCheck. (See Letter to Executive Representative, from Richard G. Ketchum, Chairman and CEO, FINRA (September 14, 2012)).

This article was originally published by Bingham McCutchen LLP.