FINRA Takes Action to Make It Harder for Brokers to Expunge Their Disciplinary Records
The Financial Industry Regulatory Authority’s Board has given the regulator permission to ask for public comment on a plan that would establish tougher requirements for when a broker would be allowed to expunge disciplinary actions from his/her BrokerCheck record. The proposed rule would update existing arbitration rules regarding the expungement of information related to customer disputes.
One proposed requirement is that an arbitration panel would have to get a copy of the BrokerCheck report when determining whether to grant an expungement request. The panel then would have to give more details about its reason to recommend a request.
According to a 2013 study by the Public Investors Arbitration Bar Association, expungement requests have been granted in up to 90% of cases that ended in an award or settlement. However, in 2014 the SEC signed off on a rule preventing broker-dealers from conditioning a settlement so that a claimant cannot counter expungement after the case is resolved.
FINRA Board Continues to Fight Elder Financial Abuse
FINRA’s board has given the self-regulatory authority permission to put out a rule proposal that would protect older investors and other vulnerable investors.
Under the rule, firms would be obligated to get the name and contact data of a trusted individual when opening an account for a customer. The rule also would let a firm, if it suspects financial fraud, freeze the money in accounts of senior investors age 65 and over, as well as the accounts of adults with physical or mental impairments. The concern is that such impairments may make it difficult for them to protect their best interests especially when they are being bilked.
The proposal comes just months after the SRO unveiled a senior protection hotline. In the months since its inception, FINRA has gotten over 1500 phone calls on matters ranging from how to get information about certain brokers, how a surviving child can locate a deceased parent’s assets, and worries over possible elder fraud.
SRO’s Guidance on Liquidity Risk Management Now Available
After a year of reviewing brokerage firms’ processes and plans related to managing liquidity during times of stress, FINRA has issued its Guidance on Liquidity Risk Management Practices. The assessment, which took place from March 2014 into the first quarter of this year, was done to better comprehend broker-dealers’ risk controls over liquidity risks and enhance awareness about the importance of planning for liquidity stress.
43 firms were assessed. The self-regulatory organization evaluated the firms’ management comprehension of liquidity risks, ability to assess their needs in stress circumstances, and planning and preparedness in event of such a scenario.
Liquidity risks, which are present when firms use leverage involving short-term borrowing to fund less-liquid assets that are long-term, may contribute to brokerage firm failures (MF Global and Lehman Brothers collapses are two examples). FINRA noted that the practices in its new guidance are for letting senior management and risk managers know about steps they should look at and potentially put into effect to fight “stressed liquidity conditions.”
A few of the effective practices and controls that FINRA found had been implemented by some of the firms: the designation of a group tasked with making sure that systems are in place to comprehend and manage a brokerage firm’s funding and liquidity process; establishment of processes around stress test results, contingency funding plans, and clear criteria for when a firm should go into contingent funding mode.
Our FINRA arbitration lawyers represent investors with securities fraud claims against financial firms. We’ve successfully represented thousands of clients in arbitration and in court. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.
FINRA Board Approves Rulemaking Item to Protect Seniors and Other Vulnerable Adults from Financial Exploitation, FINRA, September 17, 2015
Notice to Arbitrators and Parties on Expanded Expungement Guidance, FINRA
Guidance on Liquidity Risk Management Practices (PDF)