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FINRA: A Year in Review, Part 2

The Financial Industry Regulatory Authority (FINRA) marked several milestones in 2012 in the way of increased fraud preventions and arbitration judgments rendering a record amount of restitution to aggrieved investors. Part 1 of our blog on FINRA’s 2012 Year in Review focused on regulatory investigations and fines and disciplinary actions levied against brokers and firms. Part 2 highlights FINRA’s efforts to improve investor protections and enhance market transparency.

FINRA and the FINRA Investor Education Foundation successfully initiated several outreach strategies in 2012 to help investors better understand their investments, including the distribution of more than 630,000 educational brochures and other resources. In addition, the FINRA Foundation delivered its Outsmarting Investment Fraud curriculum to more than 9,000 investors at more than 170 live events nationwide.

Other notable achievements by FINRA in 2012 include the following:

  • In November, FINRA unveiled data on the outcomes of cases heard under its all-public panel program. Implemented in February 2011, the program gives investors the option of a panel comprised of all public arbitrators vs. a panel made up of one arbitrator with securities industry experience (non-public arbitrator) and two public arbitrators. The all-public panel option represents an investor-friendly change to the program and is designed to ensure a fair playing field for all parties. To date, findings show the following: In cases decided by three public arbitrators, customers were awarded damages 51% of the time. In comparison, investors were awarded damages 32% of the time in cases decided by a panel comprised of one non-public arbitrator and two public arbitrators.

 

  • In July, FINRA implemented a new suitability rule requiring a broker/dealer or their associated persons to have a “reasonable basis” to believe a recommended transaction is suitable for the customer, based on information obtained through “reasonable diligence” to understand a customer’s investment profile.

 

  • The Securities and Exchange Commission (SEC) approved a rule requiring FINRA-regulated firms that sell an issuer’s securities in a private placement to file a copy of any private placement memorandum, term sheet or other offering document that the firm used within 15 days of the date of the sale with FINRA. The rule enhances FINRA’s oversight of firms’ sales activities in private placements and became effective in December 2012.

 

  • FINRA increased investors’ ability to obtain information on financial professionals through BrokerCheck by including a zip code search and a combined search function that provides easy access to information on investment advisers from the SEC’s Investment Adviser Public Disclosure (IAPD) database. FINRA also obtained approval in September 2012 to file proposed rule changes to require firms to include a reference and a link to BrokerCheck on their Websites; to provide for disclosure of additional information through BrokerCheck; and to establish the legal and technical framework for the provision of BrokerCheck data.

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