Editorial

One hand washed the other - until now

Jul 27, 2014 @ 12:01 am

Kudos to the SEC for signing off on a rule that should make it more difficult for brokers to erase customer complaints from their records in arbitration cases that are settled.

The Securities and Exchange Commission last Wednesday authorized the Financial Industry Regulatory Authority Inc. to implement Rule 2081, which prohibits brokers from making settlements of customer disputes contingent on the claimant's agreement not to oppose expungement of the dispute from the brokers' public record.

The rule is in response to complaints from plaintiff's attorneys and some members of Congress that too many brokers were getting disciplinary actions wiped from their records by arbitrators.

PACT OF SELF-INTEREST

Indeed, brokers would strike a settlement with a wronged investor contingent on that investor's agreeing not to oppose the broker's application for expungement. Since the monetary award was often more important to an investor than the broker's disciplinary record, investors usually signed off, paving the way for the brokers to have their disciplinary slates wiped clean.

The new rule helps ensure that brokers are only able to erase customer complaints in extreme cases.

That said, there is likely more work to do. In its decision, the commission encouraged Finra to “conduct a comprehensive review of its expungement rules and procedures to determine whether additional rule making is necessary or appropriate to assure that expungement in fact is treated as an extraordinary remedy.”

TAKE A HARDER LOOK

Along those lines, we implore Finra to take steps to strengthen training of its nearly 6,500 arbitrators on the expungement process and to scrutinize expungement requests far more closely than it has in the past.

It is incumbent upon Finra to make sure it has policies and procedures in place that make expungement the exception rather than the rule in cases involving settlements.

Investors have a right to see records of customer complaints involving their brokers. After all, they are entrusting these brokers with their hard-earned savings — not to mention their retirement hopes and dreams.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

Events

How politics are moving markets

The financial services industry stands at the unique intersection of politics and market fluctuation. Clients are anxious and the right adviser can steady he waters. Scott Kubie of Carson Group explains how.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

T. Rowe Price steps up its game to serve financial advisers

The Baltimore-based mutual fund giant is more aggressively targeting financial advisers with a beefed-up wholesale crew and placement on custodial platforms.

The most important tax changes for 2018

The Internal Revenue Service issued inflation adjustments to more than 50 tax provisions for 2018.

Shift to Roth 401(k)s 'highly likely' part of tax reform: former Treasury official Mark Iwry

Mandated contributions to Roth accounts would likely only be partial, as opposed to having a full repeal of pre-tax accounts.

E*Trade acquiring custodian Trust Company of America

Discount broker buying second-tier custodian for $275 million.

Another thousand Dow points higher, and investors yawn

Market milestones keep falling like dominoes, with 51 records broken so far this year.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print