BrokerCheck link dashed

Finra yanks proposal that would have required reps to post link to database on their web sites, social media pages

Apr 28, 2013 @ 12:01 am

By Mark Schoeff Jr.

Finra last week withdrew a proposal that would have required brokers to post a link on their websites and social-media pages 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 had 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 Broker-Check.

Finra withdrew the rule due to feedback it received in 24 comment letters, spokeswoman Michelle Ong said. She said Finra plans to repropose 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,” he said. “The current rule just reached too far.”

The rule would be impossible for brokers to implement on social-media sites over which they had no control, Mr. Bellaire said.

"TECHNICAL HURDLES'

As an example, he pointed to the social-media outlet Twitter. The service provides users a 140-character biographical description page.

A link to BrokerCheck wouldn't fit into that space, and similar problems crop up on LinkedIn and Internet sites that aggregate information on individual brokers, Mr. Bellaire said.

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.

He 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 shouldn't move forward with a rule until the regulator 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 Broker- Check 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 to 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.”

mschoeff@investmentnews.com Twitter: @markschoeff

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