Senators push financial regulator for better broker info

A bipartisan pair of senators is calling on a financial regulator to tighten up its background checks of investment brokers.

Sens. Jack Reed (D-R.I.) and Chuck Grassley (R-Iowa) said the Financial Industry Regulatory Authority (FINRA) must improve the information it provides to investors, when it comes to problems in a broker’s past.

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Their comment came on the heels of a study that found the regulator often removed potentially damaging information about stockbrokers from their database for investors, such as minor criminal charges. The Wall Street Journal also reported Thursday that more than 1,600 brokers’ records do not show personal bankruptcies and criminal charges that should be reported.

FINRA, which is a private self-regulatory organization and not a government agency, has said it would be looking into the reporting problems, and the senators made clear Friday they expect to see results.

“While FINRA has been responsive to our concerns regarding expungement of broker records, we remain concerned that crucial red flags and potential warning signs are not readily available to investors,” they said in a statement. “Clearly, there is some more work that FINRA needs to do.  We expect FINRA to honor this commitment and ensure that the plain and simple facts are available to investors.”

FINRA’s handling of the database came into question by a study published by the Public Investors Arbitration Bar Association, a group for attorneys who represent investors in legal disputes with brokers.

The study found that, in addition to minor criminal charges, the database also sometimes missed cases where brokers were ever under internal review for fraud or violation of regulations, or whether they have previously failed industry qualification exams.

The attorney group determined such examples were being kept from the database by comparing what FINRA posted with broader reporters on brokers that are publicly available through some state securities regulators.

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