January 21, 2018

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SEC Oversight of Financial Industry Regulatory Authority (FINRA) Exempt from FOIA Request

The District Court for the District of Columbia has held that the Securities and Exchange Commission is exempt from producing documents relating to its audit, inspections, and review of the Financial Industry Regulatory Authority (FINRA) in response to a Freedom of Information Act (FOIA) request.

An association of attorneys representing public investors in securities arbitrations requested that the SEC produce documents related to its oversight of FINRA’s Dispute Resolution branch and examination of its administrative function. Specifically, the association sought documents concerning FINRA’s arbitrator selection process. The associations believed the arbitration selection process should be more transparent and fair. The SEC claimed Exemption 8 of FOIA did not require the SEC to produce responsive materials. The exemption protects documents “related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions.”

The court rejected the association’s arguments that Congressional intent weighed in favor of requiring the SEC to produce. Instead, the court found that the exemption was designed to safeguard the relationship between the financial institution and the reviewing agency in order to ensure that FINRA would continue to fully cooperate with the SEC. Coupled with the broad language of the exemption, the court concluded that SEC documents “related to” its oversight of FINRA need not be disclosed. The court nevertheless expressed reservations about the breadth of the SEC’s disclosure exemption, noting that the association “may be correct that Exemption 8 is overbroad because it extends to records related to the oversight of self-regulatory organizations,” but concluded that in light of the statutory language, “plaintiff’s arguments must be directed to Congress.” Public Investors Arbitration Bar Ass’n v. S.E.C., No. 11-2285 (D.D.C. Mar. 14, 2013).

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Our Financial Services Practice advises a broad spectrum of domestic and international fund managers, trading advisors, banks, brokerages and proprietary trading firms in all aspects of exchange-traded and over-the-counter commodities, securities and derivatives transactions. We help clients find business-based solutions and make business-driven decisions that are in compliance with applicable regulatory requirements. Our lawyers have extensive experience in the financial markets and are fully attuned to the need to provide advice quickly and efficiently in light of the time-sensitive and...

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