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Reed (D-RI), Grassley (R-IA): FINRA Transparency and Expungement Relief

Posted by Larry Doyle on December 17, 2013 8:19 AM |

Two weeks ago, the folks at the Project on Government Oversight filed a friend of the court brief in an attempt to bring some meaningful transparency to Wall street’s largest self-regulation organization, FINRA.

Why is it so important that FINRA be compelled to open its doors? Too many reasons, but one of them is embraced by Senators Jack Reed (D-RI) and Chuck Grassley (R-IA) who yesterday provided further fuel to the fire for those looking for real transparency from FINRA.

Let’s navigate and review a press release that highlights just how opaque this organization is.

WASHINGTON, DC – In an effort to protect investors and the integrity of the Financial Industry Regulatory Authority’s (FINRA) BrokerCheck program, U.S. Senators Jack Reed (D-RI) and Chuck Grassley (R-IA) today sent a bipartisan letter asking FINRA to clarify and strengthen standards for expungement of investor complaints against brokers.

December 16, 2013

Mr. Richard G. Ketchum
Chairman and Chief Executive Officer
Financial Industry Regulatory Authority
1735 K Street, NW
Washington, DC 20006

Dear Mr. Ketchum:

Given our interest in improving transparency of our financial markets, we are writing in response to a recent Public Investors Arbitration Bar Association (PIABA) study, which raises concerns about the number of times investor complaints may be expunged, or removed, from publicly available broker records maintained by the Financial Industry Regulatory Authority (FINRA).

FINRA provides information to investors through BrokerCheck, which FINRA believes, “should be the first resource investors turn to when choosing whether to do business or continue to do business with a particular firm or individual.”  However, as the PIABA study indicates, this system may not enable investors to easily obtain all the information necessary to determine whether to hire a particular FINRA registered broker.  According to the PIABA study, expungement relief was granted in 96.9% of cases from May 2009 through December 2011.

We share FINRA’s view that “expungement is an extraordinary remedy that should be granted only under appropriate circumstances,” and that it should be permitted “only when it has no meaningful investor protection or regulatory value.”  However, we believe that meaningful investor protection includes the disclosure of whether a customer dispute was settled.   Not just for transparency sake, but also to help prospective investors make informed decisions about which individuals or firms with whom to do business.

Given our interest in fair financial markets and transparency, we request that you provide a response to each of the five recommendations cited in the PIABA study and explain whether and why or why not FINRA intends to adopt each recommendation.  Additionally, please provide:

1. The number of instances in which FINRA has questioned or challenged the provision of expungement relief and a detailed description of the circumstances of each case.

2. Any draft legislative language that would be necessary to provide FINRA with the authority to ensure that expungment relief is provided “only when it has no meaningful investor protection or regulatory value,” if you do not believe such authority already exists.

Please provide a response by January 6, 2014.  Thank you for your attention to this important matter.


Jack Reed
Charles E. Grassley

There are clearly frivolous complaints brought against brokers that deserved to be expunged . . . but not 96.9% of them. Additionally, where is the effort to address the managers overseeing the brokers? I recently called for vigorous oversight on this front in writing FINRA ‘Cracks Down’ on High Risk Brokers. What About Management?

What does it mean when the organization charged with protecting investors generates an expungement of investor complaints against brokers at a rate of 96.9%? It means two things. First and foremost, it means that those in Washington who tell us they have reformed Wall Street via Dodd-Frank are ignorant, lying, or a combination of the two.  Secondly, it means that the organization, FINRA, expunging complaints at this rate is in bed with the industry.

I will be watching closely to see how FINRA responds to Reed and Grassley. In truly convenient fashion, FINRA’s response is due back to the senators a day before the release of my book dealing with the overarching premises evidenced herein.

Navigate accordingly.

Larry Doyle

Please pre-order a copy of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy, that will be published by Palgrave Macmillan on January 7, 2014.

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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