FINRA's RegulatoryNotice 15-39 is getting a little blog time, but sadly some law firms
writing about it seem to misunderstand not only the Notice itself, but also the
implications of the changes that have been implemented.
FINRA Rule 8313 governs the body’s public disclosure of the professional history, business
practices, and conduct of their security industry member firms, associates, and
those affiliated with the Central Registration Depository (CRD). The Notice, issued December 12, 2015, advises
of the approved change to this rule that effects the timeframe in which
FINRA releases information to the public through its online BrokerCheck
report system.
FINRA currently requires
firms to report the termination of a representative’s registration/employment
with them within 30 days of the termination through the CRD system[1]. In other words, once a
representative leaves or is fired from his or her job with XYZ Financial
Services, XYZ has 30 days to file a Form U5 regarding that termination. Once
the U5 has been processed, it becomes available for FINRA to post on
BrokerCheck, and the states to provide in the CRD Snapshot.
The Notice states that
the time FINRA must wait (after processing the filing) before making the U5
available for public access has decreased by 80 percent, from 15 days to three
(3). While this is a big change, and worthy of plenty of blog time, it in
no way effects the 30-day window employment firms have to make the U5 filings.
Now to the real heart of
the matter: Fairness.
According to FINRA, “a
three-business-day waiting period is more reasonable than a 15-day period because
it allows investors to more quickly access disclosure information reported on
Form U5 while at the same time still providing brokers with the opportunity to
comment on the reported disclosure event.” FINRA claims this was necessary for
it to fulfill its mandate to, “prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and, in general,
to protect investors and the public interest[2].”
While FINRA's argument
is for prompt disclosure to the public, they miss a key element in this
process—the accuracy of the firm's Form U5 filing. The problem is that
firms sometimes have reasons to file improper or down-right false U5s[3]. (See a previous blog
titled “How to Terminate,Discredit, and Interfere with a Financial Adviser: the U-5.”)
Until FINRA member
firms are held accountable for improper U5 termination language, the shorter
window does little to ensure that fair and accurate information is being
provided to the public, much less in a prompter fashion. The initial 15-day
window was selected to provide the representative with at least some amount of time
to respond to the filed termination language before it became public.
Changing that window to three days eliminates that opportunity.
While FINRA seems to be trying to make strides to be more transparent and
customer-friendly, they once again ignore that their own members are, at least
initially, able to wantonly disparage brokers and reap the benefits that an
improper, overly harsh, inaccurate, or unfair U5 can bring to them.
[1] The
CRD is an online registration and licensing database that allows for the filing
of required forms related to the securities industry that must be submitted for
a multitude of reasons, such as “Form U5 – Uniform Termination Notice for
Securities Industry Registration.” Regardless of the circumstances surrounding
a representative leaving the firm to which they are registered, a U5 must be
filed by the firm with the CRD within 30 days of the date of termination, as
well as be provided to the representative. FINRA determines what portions of the CRD filings become
publicly available on BrockCheck.
[2] Securities and Exchange Commission
(2015 September 25). Self-Regulatory Organizations; Financial Industry
Regulatory Authority, Inc.; Notice of Filing of a Proposed Change to Amend
FINRA Rule 8312 (FINRA BrokerCheck Disclosure) to Reduce the Waiting Period for
the Release of Information Reported on Form U5 (Release No. 34-75988; File No.
SR-FINRA-2015-032) [electronic format]. Retrieved from https://www.sec.gov/rules/sro/finra/2015/34-75988.pdf
[3]
Most U-5 disclosures, however, are free of
defamatory content or tortious intent. In other words, most broker-dealers
satisfy their obligation to ensure a full, fair, and accurate reporting.
There are, however, far too many times where this is not the case.
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