FINRA launches enhanced public records review

FINRA's 2018 volume tops 2017 activity by 87%

FINRA has announced that it is launching an enhanced disclosure review process for public financial records of individuals seeking registration with a brokerage firm. Beginning on July 9, FINRA will perform a public records review within 15 calendar days after a firm applies to register an individual with FINRA. The review will enhance the quality of information about individual brokers available to investors and reduce costs for the industry, particularly small firms. It is the latest in a series of actions under FINRA360, FINRA’s comprehensive organizational improvement initiative.

FINRA’s enhanced disclosure review process delivers significant benefits to brokerage firms as well as the investing public,” said Derek Linden, FINRA Executive Vice President, Registration and Disclosure. “Small firms, in particular, should see meaningful cost savings and reduced regulatory burden through this enhancement. The timeliness of FINRA’s review will also help assure investors that the BrokerCheck information about their representative is as accurate, complete and up-to-date as possible.

When a firm wants to hire a registered representative, it must fill out and submit a Form U4, the uniform registration application, to the Central Registration Depository (CRD), the database for the registrations of firms and individuals in the brokerage industry. Form U4 includes a variety of information on a representative, including financial disclosures, and is used by FINRA and federal and state regulators for licensing and other purposes. The information is also made available to investors through BrokerCheck.

Individual brokers are responsible for providing the necessary information to complete Form U4. In addition, as part of their supervisory obligations, firms must currently validate that the disclosure questions are answered correctly, including financial disclosures regarding bankruptcies, judgments and liens. This requirement has resulted in firms hiring vendors to perform public record checks with respect to those financial disclosures. Separately, several years ago, FINRA adopted a practice of checking public financial records itself to ensure accuracy of the financial disclosures; essentially performing the same review as firms, but on an annual basis.

Beginning on July 9, FINRA will now conduct its public records review at the time that a Form U4 is submitted and contact the applicant’s firm within 15 calendar days of the application if that review indicates that information on the Form U4 may be missing or contains discrepancies. If notified by FINRA of a potential deficiency, the firm must then investigate, and if the information is reportable, submit an amended Form U4.

With this new process, FINRA aims to ensure that firms can more readily accomplish their reporting obligations and that the data collected in CRD and made available to investors through BrokerCheck is more current and reliable. FINRA estimates that firms will save a combined $1.5 million to $3 million per year by avoiding search fees charged by vendors and fees assessed by FINRA for late filings.

The official announcement can be seen here.

Read Also: