FINRA’s BrokerCheck ‘Hides’ Criminal Records, Has Other Holes, Study Says

FINRA went on to say in its statement that "just as BrokerCheck provides information not available from state securities regulators, state securities regulators provide some information that is not available through BrokerCheck."

As part of its analysis, PIABA compared FINRA BrokerCheck and state-level disclosures for a number of brokers. PIABA found the following:

• When a broker-dealer fired a registered broker, BrokerCheck reports excluded the reason for the termination and other commentary regarding the termination, although this information is available from states.

• Information about whether a broker was ever under internal review "for fraud or wrongful taking of property, or violating investment-related statutes, regulations, rules or industry standards of conduct" is not reported by BrokerCheck, but is disclosed by states.

• A personal bankruptcy filed by a broker is not reported by BrokerCheck, but is revealed in state reports.

• A federal tax lien filed against a broker in excess of $100,000 is not disclosed by BrokerCheck, but is disclosed in state reports.

• Information about failed tests for industry qualification exams is not disclosed through BrokerCheck, which does not reveal the scores achieved and the number of times a broker failed such tests. It only shows which exams were passed but not the score or how many times a broker may have failed before finally passing. State reports do include this more detailed information.

But FINRA argues that PIABA's study information is incorrect, first by stating that FINRA makes "only a small portion" of the information contained in CRD available through BrokerCheck. In support of this "flawed premise," FINRA says the PIABA also includes flawed data about four categories of information included in a CRD snapshot that are "allegedly not provided" on BrokerCheck.

When a broker resigns, or is fired or permitted to resign, after allegations of violation of investment-related laws or rules, fraud or wrongful taking of property, or failure to supervise, both the termination of employment and the allegations of misconduct are reported on BrokerCheck. "Other reasons for termination, which do not implicate investor protection issues, are not reported. Nonetheless, PIABA mistakenly contends that BrokerCheck always excludes reasons for termination."

FINRA also argues that BrokerCheck currently excludes bankruptcies more than 10 years old, and judgments or liens that have been satisfied, consistent with the SEC and state approved uniform registration forms.

As to exam scores, BrokerCheck provides information regarding the name and date of all qualifying examinations that the broker has passed, FINRA states. "BrokerCheck does not provide test scores or information regarding failed exams.Though PIABA offers no evidence to support a correlation between test scores and broker competence, the authors argue that if an investor decides the information is important, they should be permitted to see it."

When a broker is the subject of an internal review by a former employer, disclosure information regarding that matter is not provided on BrokerCheck, FINRA says. However, "the events related to the internal investigation may be reported under sections of the uniform registration forms for disclosure of employment termination, regulatory action, customer complaints, arbitration or civil litigation."

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Check out 'Alarming' Number of Brokers' Arb Records Wiped Clean: Study on ThinkAdvisor.