[Federal Register Volume 78, Number 224 (Wednesday, November 20, 2013)]
[Notices]
[Pages 69728-69730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27756]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70876; File No. SR-FINRA-2013-048]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
FINRA Rule 8312 (FINRA BrokerCheck Disclosure) To Expand the Categories
of Civil Judicial Disclosures Permanently Included in BrokerCheck
November 14, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 1, 2013, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by FINRA. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 8312 (FINRA BrokerCheck
Disclosure) to permanently make publicly available in BrokerCheck
information about former associated persons of a member firm who have
been the subject of an investment-related civil action brought by a
state or foreign financial regulatory authority that has been dismissed
pursuant to a settlement agreement.
The text of the proposed rule change is available on FINRA's Web
site at http://www.finra.org, at the principal office of FINRA and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
FINRA established BrokerCheck in 1988 (then known as the Public
Disclosure Program) to provide the public with information on the
professional background, business practices, and conduct of FINRA
member firms and their associated persons. The information that FINRA
releases to the public through BrokerCheck is derived from the Central
Registration Depository (``CRD[supreg]''), the securities industry
online registration and licensing database. FINRA member firms, their
associated persons and regulators report information to the CRD system
via the uniform registration forms. By making most of this information
publicly available, BrokerCheck, among other things, helps investors
make informed choices about the individuals and firms with which they
conduct business.
In January 2011, Commission staff released its Study and
Recommendations on Improved Investor Access to Registration Information
About Investment Advisers and Broker-Dealers (``Study''),\3\ in
furtherance of Section 919B of the Dodd-Frank Act.\4\ The Study
contains four recommendations for improving investor access to
registration information through BrokerCheck and the Commission's
Investment Adviser Public Disclosure (``IAPD'') database. In May 2012,
FINRA implemented the Study's three ``near-term'' recommendations.\5\
FINRA is currently working on the Study's ``intermediate-term''
recommendation, which involves analyzing the feasibility and
advisability of expanding the information available through
BrokerCheck, as well as the method and format that BrokerCheck
information is displayed.
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\3\ The Study is available online at http://www.sec.gov/news/studies/2011/919bstudy.pdf.
\4\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\5\ These recommendations are to unify search returns for
BrokerCheck and IAPD, add the ability to search BrokerCheck by ZIP
code, and increase the educational content on BrokerCheck.
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In light of the Study's ``intermediate-term'' recommendation and
FINRA's belief that regular evaluation of its BrokerCheck program is an
important part of its statutory obligation to make information
available to the public,\6\
[[Page 69729]]
FINRA has initiated a thorough review of BrokerCheck. As part of this
review, FINRA issued Regulatory Notice 12-10 requesting comment on ways
to facilitate and increase investor use of BrokerCheck information. In
addition, FINRA engaged a market research consultant that conducted
focus groups and surveyed investors throughout the country to obtain
their opinions on the BrokerCheck program. Based on the evaluation that
it has conducted to this point, FINRA is proposing to amend FINRA Rule
8312 to permanently make available in BrokerCheck information about
former associated persons of a member firm who have been the subject of
an investment-related civil action brought by a state or foreign
financial regulatory authority that has been dismissed pursuant to a
settlement agreement.\7\
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\6\ See Section 15A(i) of the Act. 15 U.S.C. 78o-3(i). Since
establishing BrokerCheck, FINRA has regularly assessed the scope and
utility of the information it provides to the public and, as a
result, has made numerous changes to improve the program.
\7\ FINRA continues to consider other comments regarding changes
to BrokerCheck that were submitted in response to Regulatory Notice
12-10.
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Pursuant to Rule 8312(b)(1), FINRA releases to the public through
BrokerCheck information on current or former members, current
associated persons, and persons who were associated with a member
within the preceding 10 years. Under current Rule 8312(c)(1), FINRA
makes publicly available in BrokerCheck on a permanent basis
information about former associated persons of a member who have not
been associated with a member within the preceding ten years, and (A)
were ever the subject of a final regulatory action, or (B) were
registered on or after August 16, 1999 and were (i) convicted of or
pled guilty or nolo contendere to a crime; (ii) the subject of a civil
injunction in connection with investment-related activity or a civil
court finding of involvement in a violation of any investment-related
statute or regulation (``Civil Judicial Disclosures''); or (iii) named
as a respondent or defendant in an investment-related arbitration or
civil litigation which alleged that the person was involved in a sales
practice violation and which resulted in an arbitration award or civil
judgment against the person.
The proposed rule change would amend Rule 8312(c)(1)(B)(ii) to
expand the categories of Civil Judicial Disclosures that are
permanently included in BrokerCheck. Specifically, the proposed rule
change would permanently make publicly available in BrokerCheck
information about former associated persons of a member who were
registered on or after August 16, 1999 \8\ and who have been the
subject of an investment-related civil action brought by a state or
foreign financial regulatory authority that was dismissed pursuant to a
settlement agreement, as reported to the CRD system via a uniform
registration form.\9\ This information currently is available in
BrokerCheck for ten years from the date an individual ceases
association with a member. FINRA believes that these settled civil
actions should be available permanently in BrokerCheck because they may
involve significant events or considerable undertakings on the part of
the subject individual. For example, one civil action involving
excessive and undisclosed markups was settled for over $200,000. As
such, the proposed change would provide the public with additional
access to such relevant and important information about formerly
registered persons who, although no longer in the securities industry
in a registered capacity, may work in other investment-related
industries or may seek to attain other positions of trust with
potential investors and about whom investors may wish to learn relevant
information.
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\8\ The proposal will apply only to those individuals registered
with FINRA on or after August 16, 1999. Filings for those
individuals whose registrations terminated prior to August 16, 1999
were not made electronically so BrokerCheck reports for such firms
and individuals cannot be made in an automated fashion. Furthermore,
data limitations apply to the information available for some of
those individuals.
\9\ This information is currently elicited by Question 14H(1)(c)
on Form U4 (Uniform Application for Securities Industry Registration
or Transfer).
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FINRA will announce the effective date of the proposed rule change
in a Regulatory Notice to be published no later than 60 days following
Commission approval. The effective date will be no later than 180 days
following publication of the Regulatory Notice announcing Commission
approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\10\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. FINRA believes that the proposed rule change to
permanently make publicly available in BrokerCheck information about
persons formerly associated with a member who have been the subject of
an investment-related civil action brought by a state or foreign
financial regulatory authority that was dismissed pursuant to a
settlement agreement will enhance investor protection by expanding the
time frame for disclosure of this important information to investors
and other users of BrokerCheck. Such formerly registered persons,
although no longer in the securities industry in a registered capacity,
may work in other investment-related industries or may seek to attain
other positions of trust with potential investors. FINRA believes that
it is beneficial to investors to have access to this information on a
permanent basis.
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\10\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
FINRA believes that making publicly available on a permanent basis
in BrokerCheck information about former associated persons of a member
firm who have been the subject of an investment-related civil action
brought by a state or foreign financial regulatory authority that was
dismissed pursuant to a settlement agreement will enhance investor
protection. The proposed rule change would provide the public with
additional access to such relevant and important information about
formerly registered persons who, although no longer in the securities
industry in a registered capacity, may work in other investment-related
industries or may seek to attain other positions of trust with
potential investors and about whom investors may wish to learn relevant
information. FINRA does not anticipate that the proposed rule change
will impose any burden or additional costs on member firms. In this
regard, FINRA notes that the proposed rule change will not subject
member firms or their associated persons to any new or additional
uniform registration form reporting requirements. The Form U4 question
that elicits information on the settled civil judicial actions at issue
will remain the same; only the BrokerCheck disclosure period will
change.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The proposed rule change was published for comment by FINRA in
Regulatory Notice 12-10 (February 2012). A copy of the Regulatory
Notice
[[Page 69730]]
is attached as Exhibit 2a.\11\ The comment period expired on April 27,
2012. FINRA received 71 comment letters in response to the Regulatory
Notice. A list of the comment letters received in response to the
Regulatory Notice is attached as Exhibit 2b.\12\ Copies of the comment
letters received in response to the Regulatory Notice are attached as
Exhibit 2c.
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\11\ The Commission notes that the Exhibits referenced herein
are all attached to the filing itself and not to this notice.
\12\ All references to the commenters under this Item are to the
commenters as listed in Exhibit 2b.
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Ten of the 71 comment letters received addressed the general
expansion of the time frame for providing information through
BrokerCheck.\13\ In general, these comment letters suggested that there
should be no time limits on the inclusion of disclosure events in
BrokerCheck (e.g., information about a bankruptcy is no longer
disclosed through BrokerCheck after 10 years) \14\ and that all
information about associated persons should be included in BrokerCheck
on a permanent basis.\15\ FINRA is not prepared at this time to propose
that all BrokerCheck information should be available on a permanent
basis. FINRA is currently focused on expanding the categories of Civil
Judicial Disclosures to be permanently included in BrokerCheck,
specifically those investment-related civil actions brought by a state
or foreign financial regulatory authority that were dismissed pursuant
to a settlement agreement. FINRA believes that it is important to
permanently include such settlements in BrokerCheck at this time,
because they may involve significant events or considerable
undertakings on the part of the subject individual. The permanent
inclusion of such settlements in BrokerCheck will provide investors
additional access to this important information. As previously
mentioned, FINRA regularly assesses the BrokerCheck program and may
consider the inclusion of additional information in BrokerCheck on a
permanent basis at a later time.
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\13\ Letter from Ryan K. Bakhtiari, Public Investors Arbitration
Bar Association, to Marcia E. Asquith, Corporate Secretary, FINRA,
dated March 29, 2012 (``PIABA''); letter from Jeffrey A. Feldman, to
Marcia E. Asquith, Corporate Secretary, FINRA, dated April 1, 2012
(``Feldman''); letter from Herb Pounds, to Marcia E. Asquith,
Corporate Secretary, FINRA, dated April 2, 2012 (``Pounds''); letter
from Terrence P. Cremins, Securities Arbitration Clinic of St.
John's University School of Law, to Marcia E. Asquith, Corporate
Secretary, FINRA, dated April 4, 2012 (``St. John's''); letter from
Ross M. Langill, Regal Bay Investment Group LLC, to Marcia E.
Asquith, Corporate Secretary, FINRA, dated April 5, 2012 (``Regal
Bay''); letter from Philip M. Aidikoff, Aidikoff, Uhl & Bakhtiari,
to Marcia E. Asquith, Corporate Secretary, FINRA, dated April 20,
2012 (``Aidikoff''); letter from Jonathan W. Evans, Jonathan W.
Evans & Associates, to Marcia E. Asquith, Corporate Secretary,
FINRA, dated April 25, 2012 (``Jonathan Evans''); letter from
William A. Jacobson, Cornell University Law School, to Marcia E.
Asquith, Corporate Secretary, FINRA, dated April 26, 2012
(``Cornell''); letter from Jack E. Herstein, North American
Securities Administrators Association, Inc., to Marcia E. Asquith,
Corporate Secretary, FINRA, dated April 27, 2012 (``NASAA''); and
letter from Robert C. Port, Esq., Cohen Goldstein Port & Gottlieb,
LLP, to Marcia E. Asquith, Corporate Secretary, FINRA, dated April
12, 2012 (``Cohen'').
\14\ See, e.g., NASAA.
\15\ See, e.g., Cornell.
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Four comment letters expressed the view that some types of customer
complaints or ``technical compliance violations'' should be removed
from BrokerCheck after a prescribed period of time.\16\ Although these
comment letters addressed the time frame for disclosure of information
through BrokerCheck, they are outside the scope of the current proposal
because they do not pertain to the time frame for disclosure of the
settled Civil Judicial Disclosures that are the subject of this filing.
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\16\ Letter from Steve Klein, Farmers Financial Solutions, LLC,
to Marcia E. Asquith, Corporate Secretary, FINRA, dated April 3,
2012 (``Farmers''); letter from Ira D. Hammerman, Securities
Industry and Financial Markets Association, to Marcia E. Asquith,
Corporate Secretary, FINRA, dated April 5, 2012 (``SIFMA''); letter
from Howard Spindel, Integrated Management Solutions USA LLC, to
Marcia E. Asquith, Corporate Secretary, FINRA, dated April 27, 2012
(``IMS''); and letter from Cliff Kirsch, Sutherland Asbill & Brennan
LLP, to Marcia E. Asquith, Corporate Secretary, FINRA, dated April
27, 2012 (``Sutherland'').
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2013-048 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2013-048. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of FINRA. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-FINRA-2013-048 and should be
submitted on or before December 11, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27756 Filed 11-19-13; 8:45 am]
BILLING CODE 8011-01-P