FINRA Settlement Agreement Confidentiality: What You Need to Know
The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization that oversees the activities of broker-dealers and promotes investor protection. When FINRA investigates a broker-dealer firm or an individual associated with a firm, it may enter into a settlement agreement to resolve any violations discovered during the investigation. These settlement agreements often include confidentiality clauses that limit the disclosure of the details of the settlement.
Confidentiality clauses are common in legal settlements and serve several purposes. They may protect the reputations of the parties involved, prevent disclosure of sensitive financial or trade secrets, and limit potential legal liability. In the context of FINRA settlement agreements, confidentiality clauses are also intended to protect the integrity of the regulatory process by encouraging firms and individuals to cooperate with FINRA investigations and ensure that violations are addressed effectively.
However, some members of the investing public and media outlets have expressed concern that confidentiality clauses in FINRA settlement agreements may prevent investors from learning about past misconduct by a broker-dealer or individual. In response to these concerns, FINRA has taken steps to increase transparency in its regulatory process. For example, in 2016, FINRA began to publish information about certain types of settled disciplinary actions that previously would have been kept confidential. This includes information about firms and individuals who have been expelled or suspended from FINRA, as well as summary information about certain categories of violations and sanctions.
Despite these efforts, confidentiality clauses remain a common feature of FINRA settlement agreements. Some critics argue that these clauses are unnecessary and may actually harm investors by preventing them from learning about past misconduct. They argue that investors have a right to know about any disciplinary action taken against a broker-dealer or individual, regardless of the terms of any settlement agreement.
If you are an investor and are concerned about the confidentiality of FINRA settlement agreements, there are several resources available to help you stay informed about disciplinary actions taken by FINRA. The FINRA BrokerCheck website provides information about firms and individuals registered with FINRA, including any disciplinary actions taken against them. The website also includes information about the regulatory status of firms and individuals, as well as any customer complaints or arbitrations.
In conclusion, confidentiality clauses in FINRA settlement agreements are common and serve several important purposes, including protecting the reputations of parties involved and ensuring the integrity of the regulatory process. While there may be concerns about the impact of these clauses on investor knowledge, FINRA has taken steps to increase transparency in recent years. Investors concerned about the confidentiality of FINRA settlement agreements can turn to resources like BrokerCheck to stay informed about regulatory actions taken against broker-dealers and individuals.
