PIABA Bar Journal
Securities brokers are governed by a unique regulatory framework, subject to both extensive state and federal statutory and regulatory regimes. The vast bulk of federal regulation and oversight of brokers and brokerage firms has been delegated to the Financial Industry Regulatory Authority (“FINRA”), a self-regulatory organization with the power to govern its members’ conduct. FINRA operates under the oversight of the Securities and Exchange Commission (the “SEC”), a federal agency established by the federal securities laws.
FINRA was created on July 26, 2007 through the consolidation of the National Association of Securities Dealers (“NASD”) and the member regulation, enforcement and arbitration operations of the New York Stock Exchange. Because these two different self-regulatory organizations had different rulebooks, FINRA has been gradually consolidating their rules into a single, governing FINRA rulebook.
FINRA has established rules governing the conduct of brokers and brokerage firms, as well as the disclosure of certain information. It also provides an arbitration forum to resolve customer disputes, disputes between broker-dealer firms, and disputes between brokers and their firms. Notably, nearly every brokerage account opening agreement contains a pre-dispute arbitration clause requiring customers to submit their disputes through FINRA’s arbitration forum.
In contrast to actions filed in court, FINRA arbitrations are private proceedings. Because of this, there is limited amount of publicly available information about FINRA disputes. Pleadings and other documents and evidence filed in FINRA arbitrations are not public records. Thus, customers seeking information about a broker may not access the underlying documents filed in arbitration proceedings. This is why the FINRA mandated disclosures regarding complaints made by a broker’s customers are crucial to the investing public. Without these disclosures, current and potential customers of a particular broker would not be able to determine whether, and how many, other customers have filed complaints against their broker. As such, public disclosures take on heightened importance.
This article will start with an overview of the Central Registration Depository (the “CRD”). It will then discuss FINRA’s BrokerCheck® database and describe how the two databases work together. Next, it will provide an overview of a broker’s BrokerCheck report and detail what information may be included, which can be quite useful to both current and prospective customers in vetting a broker. This information may also be useful to attorneys who are representing investors in connection with a complaint or arbitration claim.