Senators push for tighter expungement rules for brokers

A bipartisan pair of legislators wants to make it more difficult for investment professionals to wipe their disciplinary records clean

Dec 16, 2013 @ 6:41 pm

By Trevor Hunnicutt

+ Zoom

A bipartisan duo of U.S. senators Monday pushed Finra to provide new details on a process that allows brokers to sanitize their disciplinary records.

Sen. Jack Reed (D-R.I.) and Sen. Chuck Grassley (R-Iowa) also said Wall Street's industry-funded securities regulator should respond to criticisms that whitewashed BrokerCheck reports could mislead investors.

“We believe that meaningful investor protection includes the disclosure of whether a customer dispute was settled,” the senators wrote. “Not just for transparency sake, but also to help prospective investors make informed decisions about which individuals or firms with whom to do business.”

The letter reignited a debate over the Financial Industry Regulatory Authority Inc. system that allows brokers to petition to clean their public disciplinary reports, which was catalyzed most recently by a group of lawyers that represent investors. An October report by the Public Investors Arbitration Bar Association, found that Finra arbitrators granted “expungement” at least 90% of the time in the 1,625 cases in which the term was mentioned between 2007 and 2011.

PIABA recommended that Finra itself review requests to clean brokers' records and improve its training of the corps of volunteer arbitrators who currently decide when to grant such requests. PIABA also said Finra should ban settlements containing requirements that investors who file complaints agree to not oppose the expunging of brokers' records.

Touting their letter as being in the interest of “fair financial markets and transparency,” the senators asked Finra to respond by Jan. 6 to PIABA's recommendations. They proposed draft legislation to empower Finra to ensure that slate-swiping is limited and also asked for details on when and why brokers' records are expunged.

Finra previously has said it shares PIABA's concerns and is providing additional guidance to arbitrators and reviewing its other rules. In a statement provided by spokeswoman Nancy Condon, the regulatory body said it “looks forward to working with” the senators “to address the important issues raised today.”

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