Change in review process expected to reduce brokerage industry costs

by Paul Gatling (pgatling@nwabj.com) 170 views 

The Financial Industry Regulatory Authority (FINRA) will soon offer an updated disclosure review process for public financial records of those looking to register with a brokerage firm. Starting Monday (July 9), FINRA will complete a public records review within 15 days after a firm applies to register someone with FINRA.

The review is expected to improve the quality of information about brokers available to investors and decrease industry costs, especially in small firms, according to a news release.

“FINRA’s enhanced disclosure review process delivers significant benefits to brokerage firms as well as the investing public,” said Derek Linden, executive vice president of registration and disclosure for FINRA. “Small firms, in particular, should see meaningful cost savings and reduced regulatory burden through this enhancement. The timeliness of FINRA’s review will also help assure investors that the BrokerCheck information about their representative is as accurate, complete and up-to-date as possible.”

When a firm wants to hire a registered representative, it must submit registration application Form U4 to the Central Registration Depository (CRD), the database for the firms and brokers in the industry. Form U4 includes information on a representative, such as financial disclosures, and is used by FINRA and federal and state regulators for licensing. Investors also can find the information through BrokerCheck.

Brokers must provide the necessary information to complete Form U4, and firms must validate that the disclosure questions are answered correctly, including information on bankruptcies, judgements and liens. As a result of the requirement, firms have hired vendors to complete public record checks to determine the accuracy of those disclosures. Over the past several years, FINRA also has checked public financial records to ensure the accuracy of the disclosures. The organization has completed the same checks as the firms but on an annual basis.

Starting July 9, FINRA will complete these checks when a Form U4 has been submitted and contact the applicant’s firm within 15 days if the review shows information on the form is missing or has discrepancies. If notified of an issue, the firm must investigate it and submit an amended Form U4, if the information is reportable.

The change is expected to save firms between $1.5 million and $3 million annually by avoiding search fees charged by vendors and fees assessed by FINRA for late filings.

Comments

comments