U.S. securities regulators are proposing a rule that would prevent firms and reps from making settlements with clients conditional on the clients agreeing not to oppose efforts to sanitize reps’ public disciplinary records.
The Financial Industry Regulatory Authority (FINRA) said Thursday that its board of governors approved a rule proposal that would prohibit firms and reps from making settlements of customer disputes conditional on an agreement not to oppose a request to expunge information from a rep’s record with the Central Registration Depository (CRD).
The CRD system, which is an online registration and licensing system, contains information regarding brokerage firms and reps, including personal, registration and employment history, along with information on criminal matters, regulatory and disciplinary actions, civil actions and information relating to customer disputes. Brokers who wish to have customer dispute information removed from the CRD system must obtain a court order.
FINRA says that today’s proposal is designed to help ensure that the CRD system continues to contain information that is critical to investor protection. It will be submitted to the U.S. Securities and Exchange Commission (SEC) for public comment and approval.
“We continually make improvements to the arbitration and expungement process to further enhance investor protections. FINRA feels strongly that expungement of customer dispute information shouldn’t be “bargained for” through settlement negotiations or otherwise,” said Richard Ketchum, FINRA chairman and CEO.