CRD Public Records Validation Initiative Evolving to Ongoing Validation

In April 2014, the Financial Industry Regulatory Authority (“FINRA“) rolled out the CRD Public Records Validation Initiative to conduct a review of public records available for the entire population of  approximately 630,000 active registered representatives (“RRs”) for financial disclosures that may not have been reported and for criminal disclosures that may not have been reported by RRs who have not been fingerprinted within the last five years.  Mario DiTrapani, Vice President, CRD/Public Disclosure at FINRA noted at the recent 2015 National Education Conference for the Securities & Insurance Licensing Association that the initiative would be substantially completed by year-end.

It is a major project for FINRA and has resulted in delays in the registration processing for CRD users; however, it was the first time in 35 years that the RRs data related to liens, judgments and criminal convictions maintained in the CRD data base was validated and confirmed.  To that end, a number of RRs were required to update their CRD records to reflect both liens and criminal convictions, which also resulted in fines and suspensions for some of those RRs.

Mr. DiTrapani also mentioned that on a go forward basis, FINRA will be cross checking public records against agent CRD records to keep the CRD database current.  Ultimately, he noted that on an annual basis, 25 to 30 percent of the records in the CRD system would be randomly re-validated against public records.  This is in sync with comments made earlier this year by Susan Axelrod, Executive Vice President FINRA, who observed that, while not required by new FINRA Rule 3110(e), the industry best practice should be to run background checks on existing employees at least every 3 years.

With the database being reviewed on a regular basis, it appears that to protect member firms from a potential FINRA sanction in the event of undisclosed liens or criminal activity of their RRs, FINRA member firms may also be running background checks on existing employees.  In any event, RRs should take note that the risks related to non-disclosure of reportable events such as liens, judgments and criminal convictions has increased substantially through FINRA’s monitoring of public records.