InvestmentNews (September 21, 2021) - The new leader of the umbrella organization for state securities regulators took office Tuesday promising to work on making it harder for brokers to clear their records of customer disputes.
Maryland Securities Commissioner Melanie Senter Lubin was inaugurated as the 104th president of the North American Securities Association at its annual conference in Chicago. The post is held for one year by a state regulator who has been deeply involved in the organization.
One of Lubin’s priorities as NASAA will be to reform expungement, the process by which registered representatives remove customer complaints and disciplinary history on their profiles on the BrokerCheck database maintained by the Financial Industry Regulatory Authority Inc.
“Those of you who know me know of my longstanding concern with expungement,” Lubin said at an inaugural luncheon, according to the speech text posted on the NASAA website. “You’ll also know that it … has always been NASAA’s position that expungement is an extraordinary remedy that should only be allowed in very limited circumstances. Despite most everyone’s best intentions, the current system of arbitrator-awarded expungements does not operate within these parameters.”
Expungement critics assert it is too easy for brokers to polish their records. They do so through requests submitted in Finra’s arbitration system.
A recent study by the Public Investors Advocate Bar Association showed 90% of expungement requests are granted by arbitrators. Finra says only 4% of customer-dispute disclosures were expunged by court order from 2015 to 2020. Finra recently withdrew an expungement reform proposal it had filed with the Securities and Exchange Commission.
State regulators will work with the SEC and Finra to improve expungement, Lubin said.
“Tightening the standards and procedures surrounding expungements is critical to stop the ongoing threat to the integrity of recordkeeping and to critical information needed by regulators making licensing decisions, firms making hiring decisions, and investors deciding whom to trust with their financial wellbeing,” Lubin said.
She also expressed misgivings about digital trading apps that have become enormously popular. The fact that they’re accessible by anyone with a smartphone can open markets to first-time investors, but also create opportunities for them to get hurt.
“Coupling that accessibility with digital ‘nudges’ or prompts raises significant concerns over the potential dangers that these apps present to novice investors or those without the means to sustain significant losses,” Lubin said. “I am not suggesting these platforms are inherently bad, but I am concerned that they purposely encourage — and might actually manipulate their users — toward speculative trading habits that are harmful to investors and the markets.”
Lubin succeeds Lisa A. Hopkins, West Virginia senior deputy securities commissioner, as NASAA president.
“I’m proud that, for the first time in NASAA history, two women are serving consecutively as NASAA president and that our board has a majority of six women,” Lubin said. “And while we have made progress with regard to gender diversity, we know that there is much work to be done to meet our [diversity, equity and inclusion] aspirations.”