How a Broker's Sensitive Info Will Soon Hit BrokerCheck Faster
An ongoing overhaul of Finra’s Central Registration Depository system is expected to benefit investors by speeding up the availability of information on BrokerCheck, according to the executive overseeing the changes at the self-regulator.
Since the information on the CRD is used to populate the BrokerCheck system, “the changes to the CRD will bring information more quickly to BrokerCheck,” Derek Linden, Finra’s executive vice president of registration and disclosure, said in a podcast on Tuesday.
Linden noted that investors and other users conduct more than 37 million searches and get more than 17 million summary pages on BrokerCheck every year.
BrokerCheck serves as a tool for investors and other interested parties to conduct a background check on their broker-dealers and broker-dealer firms. BrokerCheck’s reports on broker-dealers include information such as employment history, professional qualifications, disciplinary actions, criminal convictions, civil judgments and arbitration awards. BrokerCheck’s reports on broker-dealer firms include information on a firm’s profile, history, operations and disclosures.
The CRD maintains the registration records of around 640,000 Finra-registered brokers and professionals and around 4,000 registered firms.
Linden said the CRD system being used by Finra has been in place since 1999. Finra was created from the merger of the National Association of Securities Dealers and the regulatory arm of the New York Stock Exchange in 2007.
The information stored in the CRD comes largely from Form U4 and Form U5 filings.
Form U4 — the Uniform Application for Securities Industry Registration or Transfer — includes criminal history; regulatory actions; civil judicial proceedings; customer complaints; arbitrations; employment terminations; bankruptcy judgments and liens; branch office, residential and employment history; and any outside business activity.
Form U5 — the Uniform Termination Notice for Securities Industry Registration — includes the reason an individual left a firm, whether the individual quit or was fired.
Giving an example of the complexity of using the current CRD system, Linden said an individual’s Form U4 is around 40 pages long, including all the attachments.
“Depending on a particular broker’s circumstances, completing Form U4 can be quite a challenging task,” Linden said. “And the process of reviewing that information, for regulators, can be similarly challenging.”
Linden said improvements have been made to the CRD system, particularly since Finra announced its initiative to transform the CRD in June 2018.
The improvements “get the job done” but are still far from ideal, according to Linden.
“It’s a very capable system but it's not flexible the way modern applications are, and it’s not designed to leverage cloud technology or modern architecture solutions,” he added.
The first phase of the overhaul — implemented in June last year — involved a “Web CRD interface” highlighting important information or activities requiring the immediate attention of firms, branches and individuals. The Web CRD is the online registration system that lets the securities industry, federal and state regulators and securities exchanges interact with the CRD.
Also part of the overhaul plans were revamping the process for completing required submissions, including allowing efficient, paperless information updates without requiring full form submissions; expanding the ability for firms to delegate work and collaborate with registered staff; introducing e-signature functionality; and developing capabilities for bulk transactions.
The next steps include continuing to improve the CRD experience for its users, whether regulators or industry professionals; improving the underlying technology and moving the system from an on-premises database to a cloud location this year, according to Linden.
One of the goals in improving the CRD user experience is to provide regulators and industry professionals with information such as an activities list that “can be personalized" so that the user gets quicker access to relevant information, Linden said.
The design changes are all about “how do we provide the information you need in fewer clicks,” he noted.
Linden said Finra took into consideration input from member firms when planning the overhaul of the CRD system, including “pain points” for firms, the changes they would like to see and features that would make it easier for them to get their job done.