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FINRA Withdraws its BrokerCheck Proposed Rule

The Financial Industry Regulatory Authority Inc. (“FINRA”) yesterday announced that it is withdrawing its proposed rule that would have required brokers/registered representatives to include, “a prominent description of and link to” the database, BrokerCheck, on their websites and social-media pages, such as Facebook and Twitter. FINRA BrokerCheck is an online database that provides information about brokers and brokerage firms, as well as investment adviser firms and representatives. The report discloses, among other things, the state(s) the broker is licensed to conduct business, whether he or she has been sanctioned by securities regulators for violations of investment-related regulation(s) or statute(s), and whether there are any customer complaints or arbitrations awards against the broker. One of the main goals of BrokerCheck is to disclose information about FINRA-registered brokerage firms and brokers to help investors determine whether to conduct, or continue to conduct, business with these brokerage firms and brokers. Brokers/registered representatives are required to annually provide the BrokerCheck hotline number and FINRA website address to their clients in writing. Under the FINRA proposed rule, 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. Reportedly, FINRA withdrew the rule due to feedback it received against enacting the rule in 24 comment letters. For instance, David Bellaire, Financial Services Institute Inc.’s executive Vice President and General Counsel, opposed the rule because it was too broad and lacked clarity. He stated, “The rule did not work in the Internet environment that our financial advisers and broker-dealer members operate in…the current rule just reached too far.” He pointed to an example where the rule would be impossible for brokers to implement on social-media sites, such as Twitter, over which they had no control. Since Twitter provides users a 140-character biographical description page, a link to BrokerCheck would not fit into that space. Wells Fargo Advisors LLC also opposed the rule. Robert McCarthy, Director of regulatory policy at Wells Fargo Advisors, wrote, “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.” A representative of the Committee of Annuity Insurers, a group of 28 insurance companies, also stated, “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.” It will be interesting to see if the Securities and Exchange Commission (“SEC”) and FINRA implement other proposals to make brokers’ backgrounds more accessible to investors.

Lax & Neville LLP has nationally represented small broker-dealers, financial services professionals and securities industry companies in regulatory matters, including regulatory enforcement proceedings, and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.

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