FINRA Warns Firms Not to Bar Employee Whistleblowing

The Financial Industry Regulatory Authority — a self-policing arm of the securities industry — reminded its member firms not to ask their employees to sign confidentiality agreements that forbid reporting possible wrongdoing to FINRA itself, or to industry regulators such as the U.S. Securities and Exchange Commission.

FINRA may discipline firms that add such provisions to agreements with their employees, it said in a new regulatory notice. FINRA also said that any language that bars employees from sharing certain documents outside their firm can’t stop employees from giving the same documents to regulators.

The new notice is similar to guidance issued in 2004. It’s not clear what prompted the reminder, but FINRA made its announcement shortly after the SEC approved a rule change giving arbitrators more latitude to ask FINRA to investigate possible wrongdoing that is raised — often by employees — in arbitration hearings that might end in settlements containing confidentiality provisions.

FINRA said it’s not banning all confidentiality provisions — but that any provisions must include a carve-out along these lines:

Any non-disclosure provision in this agreement does not prohibit or restrict you (or your attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, the SEC, FINRA, any other self-regulatory organization or any other state or federal regulatory authority …

Tagged: Dodd-Frank Act, Enforcement Bodies, Fraud Types, Securities and Exchange Commission (SEC), Securities Fraud, Whistleblower Laws (Federal)