March 6 Congress should pass legislation requiring Wall Street's industry-funded watchdog to plug significant gaps in the disclosure system it uses to present brokers' backgrounds to investors, a group of investor lawyers said in a report released on Thursday.
FINRA does not go as far as some U.S. state securities regulators do in providing disclosures to investors, the group said. The report raises questions about whether the Financial Industry Regulatory Authority's BrokerCheck service provides all the information investors need to choose a broker.
For example, BrokerCheck does not typically disclose specific reasons why a broker was fired or bankruptcies from more than 10 years ago, the Public Investors Arbitration Bar Association (PIABA), which developed the study, said.
That is the case even though FINRA and states both retrieve their information from a larger database that the industry and regulators use to research brokers' pasts, PIABA said. [ID: nL1N0M21JI]
"Immediate legislative change is needed to prevent consumers from being misled into believing that BrokerCheck reports are comprehensive when they are not," PIABA wrote in the report.
The group's study follows another problem for FINRA: A Wall Street Journal investigation published late Wednesday found that the public records of some 1,600 brokers failed to include criminal charges and other problematic issues that should have been in their files. (link.reuters.com/dak47v)
"BrokerCheck is the only free online tool of its kind available to the public 24 hours a day, seven days a week," a FINRA spokeswoman said in a statement. "While the system may not be perfect, we do have to make determinations on what information about registered representatives is appropriate to release, while at the same time balancing fairness rather than ignoring it," she said.
The FINRA spokeswoman declined to immediately comment on the Wall Street Journal's story.
FINRA, the group alleges, has ignored multiple requests to include the same breadth of information in BrokerCheck that appears in the larger database it runs, known as the Central Registration Depository.
FINRA oversees nearly 636,000 brokers and 4100 brokerages.
More than 75 percent of state securities regulators refer investors to BrokerCheck from their websites, FINRA said. (Reporting by Suzanne Barlyn; Editing by Cynthia Osterman)