A further turn in the arena of regulations toward client disclosures and agreements has taken place at the Financial Industry Regulatory Authority (“FINRA”),where a newly-approved rule on conditioning settlement agreements was detailed in a February 13, 2014 press release. According to the release – which will be brought to the Securities and Exchange Commission (“SEC”)for public comment and review/approval – FINRA’s Board of Governors approved a rule proposal that will restrict firms and “associated persons” from using client agreements to condition settlements of customer disputes that prevent a customer from opposing an expungement request for information in an associated person’s Central Registration Depository (“CRD”)record.
FINRA’s rule proposal aims to “help ensure that the CRD system continues to contain information that is critical to investor protection,” while also preventing unwanted pressures for a firm’s clients to sign agreements allowing CRD expungement. As stated by Richard Ketchum, FINRA Chairman and Chief Executive Officer, “expungement of customer dispute information shouldn’t be ‘bargained for’ through settlement negotiations or otherwise.” The operations of the CRD, run by FINRA as an online registration and licensing system, catalogues the registration, employment and criminal history of an individual and allows for certain details of firm members and their associated individuals, such as regulatory and disciplinary actions, to be expunged from a record with the help of a court order or through confirmation of an arbitration award containing expungement relief. While expunging a record is allowable in these circumstances, FINRA has decided, in this case, that conditioning a settlement within client agreements does more harm than good for the relationships between firms and their clients.
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