Document ID: SEC-2022-1254-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2022-09-21T04:00Z

[Federal Register Volume 87, Number 182 (Wednesday, September 21, 2022)]
[Notices]
[Pages 57731-57732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-20376]

[[Page 57731]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95791; File No. SR-FINRA-2022-015]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove the Proposed Rule Change To Amend FINRA Rule 8312 
(FINRA BrokerCheck Disclosure) To Release Information on BrokerCheck 
Relating to Firm Designation as a Restricted Firm

September 15, 2022.

I. Introduction

    On June 3, 2022, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change SR-FINRA-2022-015 pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange 
Act'') \1\ and Rule 19b 4 \2\ thereunder to amend Rule 8312 (FINRA 
BrokerCheck Disclosure) to release information on BrokerCheck as to 
whether a particular member firm or former member firm is currently 
designated as a ``Restricted Firm'' pursuant to Rule 4111 (Restricted 
Firm Obligations) and Rule 9561 (Procedures for Regulating Activities 
Under Rule 4111). The proposed rule change was published for public 
comment in the Federal Register on June 17, 2022.\3\ On July 20, 2022, 
FINRA consented to an extension of the time period in which the 
Commission must approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
approve or disapprove the proposed rule change to September 15, 
2022.\4\ On September 15, 2022, FINRA responded to the comment letters 
received in response to the Notice.\5\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Exchange Act Release No. 95092 (June 13, 2022), 87 FR 36551 
(June 17, 2022) (File No. SR-FINRA-2022-015) (``Notice'').
    \4\ See letter from Michael Garawski, Associate General Counsel, 
FINRA, to Daniel Fisher, Branch Chief, Division of Trading and 
Markets, Commission, dated July 20, 2022. This letter is available 
at https://www.finra.org/sites/default/files/2022-07/sr-finra-2022-015-extension1.pdf.
    \5\ See letter from Michael Garawski, Associate General Counsel, 
FINRA, to Vanessa Countryman, Secretary, Commission, dated September 
15, 2022 (``FINRA Response'').
---------------------------------------------------------------------------

    The Commission is publishing this order pursuant to Section 
19(b)(2)(B) of the Exchange Act \6\ to solicit comments on the proposed 
rule change and to institute proceedings to determine whether to 
approve or disapprove the proposed rule change.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

A. Background

1. FINRA Rules 4111 (Restricted Firm Obligations) and 9561 (Procedures 
for Regulating Activities Under Rule 4111)
    FINRA Rule 4111 established an annual process to designate as 
``Restricted Firms'' member firms that present a high degree of risk to 
the investing public, based on numeric thresholds of firm-level and 
individual-level disclosure events, and then impose on such firms a 
``Restricted Deposit Requirement'' \7\ or, in addition or in the 
alternative, conditions or restrictions on the member firm's operations 
that are necessary or appropriate to protect investors and the public 
interest.\8\ According to FINRA, the rule was designed to protect 
investors and the public interest by strengthening the tools available 
to FINRA to address the risks posed by member firms with a significant 
history of misconduct.\9\ FINRA stated that it creates incentives for 
firms to change behaviors and activities, either to avoid being 
designated or re-designated as a Restricted Firm.\10\
---------------------------------------------------------------------------

    \7\ See Rule 4111(i)(15) (definition of ``Restricted Deposit 
Requirement''). A firm subject to a Restricted Deposit Requirement 
will be required to establish a Restricted Deposit Account and 
deposit in that account cash or qualified securities with an 
aggregate value that is not less than the member firms's Restricted 
Deposit Requirement. See Rule 4111(a); 4111(i)(14) (definition of 
``Restricted Deposit Account'').
    \8\ See Exchange Act Release No. 92525 (July 30, 2021), 86 FR 
42925 (August 5, 2021) (Order Approving File No. SR-FINRA-2020-041, 
as Modified by Amendment Nos. 1 and 2) and Exchange Act Release No. 
92525 (July 30, 2021), 86 FR 49589 (September 3, 2021) (Order 
Approving File No. SR-FINRA-2020-041) (Correction) (collectively, 
``Rule 4111 Order''). Pursuant to FINRA Rule 9561(a)(1), FINRA's 
Department of Member Regulation (``Department'') shall issue a 
notice of its determination under Rule 4111 that a firm is a 
Restricted Firm and the requirements, conditions or restrictions to 
which the Restricted Firm is subject.
    \9\ See Rule 4111 Order, 86 FR at 42926.
    \10\ See id. at 42926 and 42932.
---------------------------------------------------------------------------

    FINRA Rule 9561 established expedited proceedings that: (1) provide 
firms an opportunity to challenge any requirements the Department has 
imposed, including any Restricted Deposit Requirements, by requesting a 
prompt review of its decision in the Rule 4111 process; and (2) address 
a member firm's failure to comply with any requirements imposed under 
Rule 4111.\11\
---------------------------------------------------------------------------

    \11\ See id. at 42931.
---------------------------------------------------------------------------

2. FINRA Rule 8312 (FINRA BrokerCheck Disclosure)
    FINRA Rule 8312 (FINRA BrokerCheck Disclosure) governs the 
information about current and former registered broker-dealers and 
their associated persons that FINRA releases to the public through its 
BrokerCheck system.\12\ Information available to investors through 
BrokerCheck includes, among other things, information reported on the 
most recently filed registration forms \13\ (with limited exceptions) 
for both firms and registered individuals, and summary information 
about certain arbitration awards against a firm involving a securities 
or commodities dispute with a public customer.\14\ This information 
includes a description of where and when the firm was established, 
people and entities that own controlling shares or directly influence 
the firm's daily operations, the name and succession history for 
current or former firms, the firm's active licenses and registrations, 
the types of businesses it conducts, information about arbitration 
awards and disciplinary matters, and information as to whether a 
particular member firm is subject to the provisions of the Taping Rule, 
among other information and disclosures.\15\ FINRA stated that 
BrokerCheck helps investors make informed choices about the brokers and 
member firms with which they conduct business by providing

[[Page 57732]]

registration and disciplinary history to investors at no charge.\16\
---------------------------------------------------------------------------

    \12\ According to FINRA, users of BrokerCheck include, among 
others, investors, member firms and other entities in the financial 
services industry, regulators, and individuals registered as brokers 
or seeking employment in the brokerage industry. See Notice, 87 FR 
at 36553. FINRA requires member firms to inform their customers of 
the availability of BrokerCheck. See Rule 2210(d)(8) (requiring that 
each of a member firm's websites include a readily apparent 
reference and hyperlink to BrokerCheck on the initial web page that 
the member firm intends to be viewed by retail investors and any 
other web page that includes a professional profile of one or more 
registered persons who conduct business with retail investors) and 
Rule 2267 (requiring member firms to provide to customers the FINRA 
BrokerCheck Hotline Number and a statement as to the availability to 
the customer of an investor brochure that includes information 
describing BrokerCheck); see also Notice, 87 FR at note 12 and 
accompanying text. The BrokerCheck website is available at 
brokercheck.finra.org. See Notice, 87 FR at note 11.
    \13\ These registration forms are the Uniform Application for 
Securities Industry Registration or Transfer (Form U4), the Uniform 
Termination Notice for Securities Industry Registration (Form U5), 
the Uniform Disciplinary Action Reporting Form (Form U6), the 
Uniform Application for Broker-Dealer Registration (Form BD), and 
the Uniform Request for Broker-Dealer Withdrawal (Form BDW). See 
Notice, 87 FR at note 13; see also Rule 8312(b)(2)(A).
    \14\ See Notice, 67 FR at 36552.
    \15\ See id. at 36553-36554.
    \16\ See id. at 36552.
---------------------------------------------------------------------------

B. Proposed Amendments to Rule 8312

    The proposed rule change would amend Rule 8312 to release 
information on BrokerCheck as to whether a particular member firm or 
former member firm is currently designated as a Restricted Firm 
pursuant to Rules 4111 and 9561. Information that a firm is currently a 
Restricted Firm would be displayed in BrokerCheck on both a firm's 
summary report and detailed report. Specifically, those reports would 
include the text, ``This firm is currently designated as a Restricted 
Firm pursuant to FINRA Rule 4111 (Restricted Firm Obligations),'' in a 
color or font that is prominent. The alert also would include the text 
``Click here for more information,'' with a hyperlink to a page on 
FINRA's website that provides for the investing public a clear 
explanation of Rule 4111 and what it means to be a Restricted Firm.\17\
---------------------------------------------------------------------------

    \17\ See id. at 36522. This would be similar to how BrokerCheck 
displays information that a firm is a ``taping firm.'' See id. at 
note 19.
---------------------------------------------------------------------------

    Information that a firm is a Restricted Firm would display on 
BrokerCheck while that firm is designated as a Restricted Firm. This 
Restricted Firm status would remain displayed while a Rule 9561 
expedited proceeding to review the Department's decision is pending 
since the decision that designates a firm as a Restricted Firm will not 
be stayed during a Rule 9561 expedited proceeding.\18\ When a firm is 
no longer designated as a Restricted Firm, no historical information 
would be displayed on BrokerCheck that the firm was a Restricted 
Firm.\19\
---------------------------------------------------------------------------

    \18\ See Notice, 87 FR at 36552; see also Rule 9561(a)(4) 
(Effectiveness of the Rule 4111 Requirements).
    \19\ See Notice, 87 FR at 36552.
---------------------------------------------------------------------------

III. Proceedings To Determine Whether To Approve or Disapprove File No. 
SR-FINRA-2022-015 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act to determine whether the proposed rule 
change should be approved or disapproved.\20\ Institution of 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to the proposed rule change.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Exchange Act, the Commission 
is providing notice of the grounds for disapproval under 
consideration.\21\ The Commission is instituting proceedings to allow 
for additional analysis and input concerning whether the proposed rule 
change is consistent with the Exchange Act and the rules thereunder.
---------------------------------------------------------------------------

    \21\ Id.
---------------------------------------------------------------------------

IV. Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposed rule change. In particular, the Commission invites 
the written views of interested persons concerning whether the proposed 
rule change is consistent with the Exchange Act and the rules 
thereunder.
    Although there do not appear to be any issues relevant to approval 
or disapproval that would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\22\
---------------------------------------------------------------------------

    \22\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Acts Amendments of 1975, Public Law 94-29, 89 Stat. 97 
(1975), grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Acts Amendments of 
1975, Report of the Senate Committee on Banking, Housing and Urban 
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 
30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by October 12, 2022. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
October 26, 2022.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-FINRA-2022-015 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File No. SR-FINRA-2022-015. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of FINRA. All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly.
    All submissions should refer to File No. SR-FINRA-2022-015 and 
should be submitted on or before October 12, 2022. If comments are 
received, any rebuttal comments should be submitted on or before 
October 26, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20376 Filed 9-20-22; 8:45 am]
BILLING CODE 8011-01-P