Finra backpedals, pulls plan mandating web links to BrokerCheck

Proposal would have required reps, firms to provide URL to database on their sites

Apr 24, 2013 @ 1:15 pm

By Mark Schoeff Jr.

Finra today withdrew a proposal that would have required brokers to post a link on their websites and social media to a database containing information about their disciplinary history.

The Financial Industry Regulatory Authority Inc. proposed the rule this year. It would have required Finra members to include “a prominent description of and link to” the database, BrokerCheck, on their websites and social-media pages, according to a notice filed in the Jan. 25 edition of the Federal Register.

Every year, brokers have to provide the BrokerCheck hotline number and Finra website address to their clients in writing. Under the proposal, a broker or firm's website would have a direct link to the broker's or firm's specific BrokerCheck page — rather than to the BrokerCheck home page.

Finra proposed the rule as a way to increase investor usage of BrokerCheck. Finra spokeswoman Michelle Ong said the regulator withdrew the rule due to feedback it received in 24 comment letters and would re-propose the rule.

The Financial Services Institute Inc. opposed the rule because it was too broad and lacked clarity, according to David Bellaire, the FSI's executive vice president and general counsel.

“The rule did not work in the Internet environment that our financial advisers and broker-dealer members operate in,” Mr. Bellaire said. “The current rule just reached too far.”

He contended that the rule would be impossible for brokers to implement on social-media sites over which they had no control.

As an example, he pointed to the social-media outlet Twitter. The service provides users a 140-character biographical description page. Mr. Bellaire said that a link to BrokerCheck would not fit into that space and that similar problems crop up on LinkedIn and Internet sites that aggregate information on individual brokers.

Wells Fargo Advisors LLC also opposed the rule.

“WFA believes the proposed Rule 2267 amendments are overinclusive and underestimate the technical hurdles to compliance, particularly as the proposed rule provisions would require modifications to and maintenance of third-party social-network platforms and comparable Internet presences,” Robert McCarthy, director of regulatory policy at Wells Fargo Advisors, wrote.

Mr. McCarthy went on to write that limiting the rule to the inclusion of a link “on a firm's proprietary website would address many of the feasibility issues of the proposed amendments while still facilitating greater access to the BrokerCheck system.”

The Committee of Annuity Insurers, a group of 28 insurance companies, cautioned that Finra should not move forward with a rule until the agency redesigns BrokerCheck.

“We believe it is more logical for Finra to focus first on any necessary enhancements to the manner in which the information in BrokerCheck is organized and presented to investors, and then focus on ways to allow investors to effectively access BrokerCheck,” wrote Clifford Kirch and Eric Arnold, partners at Sutherland Asbill & Brennan LLP, on behalf of the insurance group.

The Dodd-Frank financial reform law directed the Securities and Exchange Commission to study ways to make brokers' backgrounds more accessible to investors. The Finra proposal was a step in that direction.

But BrokerCheck itself causes some pause.

“You don't want it as a litmus test,” said Terry Reilly, who is of counsel at Montgomery McCracken Walker & Rhoads LLP. “There's concern about what firms do and don't report about people who are leaving. You don't want a little knowledge to be a dangerous thing.

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