NASD Board Approves Disciplinary Rule Implementing NASAA/NASD Policy Restricting Expungement of Information from CRD
Washington, DC - NASD's Board of Governors has approved a rule proposal limiting the removal of customer dispute information from the Central Registration Depository (CRD). This proposed NASD disciplinary rule will enforce a new policy governing expungement from CRD developed jointly with the North American Securities Administrators Association (NASAA). The proposed rule, which resulted from extensive consultation with the Securities and Exchange Commission (SEC), the North American Securities Administrators Association (NASAA) and the securities industry, will be filed by NASD with the SEC shortly.
The new CRD policy, which will be implemented after NASD's rule proposal is reviewed and approved by the SEC, would make permanent the previously imposed moratorium, which requires that a court must confirm any arbitration order for the removal of customer dispute information. In addition, NASD members and associated persons would be required to make NASD a party to a court proceeding seeking either a court-issued expungement order or court confirmation of an arbitration expungement order. NASD will oppose expunging arbitrations in court proceedings unless the elimination of the information is based on findings by the arbitrators or judge that the subject matter of the claim or the information in the CRD system:
- is without factual basis (i.e., is factually impossible or there is clear error);
- fails to state a claim (i.e., fails to state a claim upon which relief can be granted or is frivolous); or
- is defamatory in nature.
There may be rare instances when NASD determines that an exceptional case exists where the basis for the removal is appropriate, but does not fall within one of the three preceding standards (like identity theft and confidential customer information). NASD would make this type of determination only if it determines that the expungement is warranted based on a finding outside of the three categories and the removal would not have an adverse effect on investor protection, the integrity of the CRD system or regulatory requirements. NASD also proposes to include a process by which it will waive the requirement to be made a party if it determines that the expungement meets one of the above standards.
NASD will notify state regulators when it is named as a party or receives a waiver request. State regulators may decide to join the proceedings and oppose the expungement.
"In developing the rules, all the participants in the process worked very hard to balance the need for investors to have access to information about their brokers with the need for securities professionals to have a fair process," said Douglas Shulman, President of Regulatory Services and Operations. "At the same time, it is extremely important that we ensure that information contained in CRD is accurate and complete so that regulators have broad access to customer dispute information."
"This new rule will help protect investors by maintaining the integrity of the CRD system," said Christine Bruenn, NASAA president and Maine's securities administrator. "These new standards will reduce the possibility that a broker would be able to use arbitration and the courts to get a clean CRD record."
NASD and NASAA will closely monitor expungements under the new policy and will consider changes as necessary based on their experience under the new policy.
The CRD system is the registration and licensing system for the United States securities industry and its federal and state regulators and self-regulatory organizations and is jointly administered by NASD and NASAA.
Federal and state laws require comprehensive reporting of each broker's administrative information, including personal, employment and registration data as well as disclosure information (e.g., criminal, regulatory, customer complaint/dispute and financial) prior to and throughout their securities career.
Individual broker and firm information collected through the CRD system is used by federal and state securities regulators and the securities industry for regulatory and compliance purposes. Information from the CRD system is made available to investors by NASD upon request through its Public Disclosure Program (PDP) and by state regulators under state law.
NASD is the leading private-sector provider of financial regulatory services, dedicated to bringing integrity to the markets and confidence to investors through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web site at www.nasd.com.
Organized in 1919, the NASAA is the oldest international organization devoted to investor protection. It is a voluntary association whose membership consists of 66 state, provincial, and territorial securities administrators in the 50 states, the District of Columbia, Puerto Rico, Canada, and Mexico. In the United States, NASAA is the voice of the 50 state securities agencies responsible for efficient capital formation and grass-roots investor protection.