February 5, 2018

VIA EMAIL ([email protected])

Marcia E. Asquith
Office of the Corporate Secretary
FINRA
1735 K Street, NW
Washington, DC 20006-1506

Re: FINRA Regulatory Notice 17-42 Proposed Amendments to the Codes of Arbitration Relating to Requests to Expunge Customer Dispute Information

Dear Ms. Asquith:

The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to provide this letter in response to the Financial Industry Regulatory Authority’s (“FINRA”) Regulatory Notice 17-42, proposing amendments to the Codes of Arbitration, including FINRA Rules 12805 and 13805, relating to requests to expunge customer dispute information (the “Notice” or the “Proposal”).

I. Executive Summary
SIFMA continues to support the essential goals of the Central Registration Depository (“CRD”) and FINRA BrokerCheck public disclosure system, including that investors should have access to complete and accurate information about firms and individual registered representatives.2 Given the general public’s increased use of and reliance upon BrokerCheck, the accuracy of reported information should be of paramount concern. No one benefits when a regulatory entity publishes, and thereby attaches its imprimatur to, potentially inaccurate or misleading information.

SIFMA believes that existing rules and FINRA’s expanded expungement guidance provide sufficient safeguards for the expungement process. The proposed rules would establish
inconsistent adjudicatory standards and procedures applicable only to expungement applications, and would increase the cost and burden on registered representatives seeking to protect their reputations and livelihoods from the harm caused by the disclosure of false or misleading customer complaint information.

The Notice asserts that by increasing the obstacles to expungement, including the costs and inconvenience to registered representatives, expungement filings would be fewer and more
meritorious. However, the rule proposals and accompanying conclusions have been presented without any accompanying evidence that such changes are in fact necessary. Namely, the Proposal does not provide any cost-benefit analyses or empirical evidence that expungements are too numerous, are being improperly granted, or are being pursued in ways that are inconsistent with FINRA rules and regulatory guidance. 3 Anecdotal concerns from “critics of expungement” should not be the basis for wholesale changes to an essential remedy afforded to over 630,000 registered representatives to prevent the unfair dissemination of false or misleading information.

II. FINRA’s Disclosure Regime Is Allegation-Driven And Expungement Is An Essential
Remedy To Prevent The Dissemination Of False Or Misleading Information

The CRD/BrokerCheck regulatory reporting regime presently requires the public disclosure of more information by registered persons than any other regulated profession. The broad reporting requirements related to customer complaints are “allegation-driven,” rather than outcome-based, and require disclosure based on the “four corners” of a written customer complaint or pleading, even in the face of clear evidence to the contrary. Moreover, many complaints involve productrelated allegations that in some cases unfairly result in disclosures against individual registered representatives.

FINRA’s 2009 amendments to the Uniform Forms (Forms U4 and U5), especially those requiring disclosure of customer complaints against “unnamed” persons (See Reg. Notice 09-23), and the BrokerCheck Disclosure Rule (FINRA Rule 8312) have resulted in an increase in reportable disclosures, which can remain on a registered persons’ public record for as long as they are in the industry and for several years thereafter.

Continue Reading >

1  SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.

2  See NASD Notice to Members 99-54, p. 2 (July 1999) stating that “NASD Regulation recognizes that the information on the CRD system has important investor protection implications, provided it is complete and accurate.” See also SIFMA April 2012 comment letter in response to Regulatory Notice 12-10 (February 2012) stating that “the information maintained in BrokerCheck must be accurate, clear, concise and relevant to the investor, and must be balanced against member firms’ and their employees’ legitimate privacy interests, and expectations of fairness and balance.” See also Notice to Arbitrators and Parties on Expanded Expungement Guidance (Updated September 2017) requiring that disclosures be “accurate and meaningful.”

3 See Framework Regarding FINRA’s Approach to Economic Impact Assessments for Proposed Rulemaking (Sept. 2013) (detailing FINRA’s cost-benefit analysis obligations), available at
http://www.finra.org/sites/default/files/Economic%20Impact%20Assessment_0_0.pdf