FINRA IS AGAIN SEEKING TO MAKE EXPUNGMENT EVEN HARDER!!!

American Flag

Of course, expungement means removing allegations made by customers and others from the Central Registration Depository (“CRD”), which would thereby remove it from FINRA’s Broker Check (“Broker Check”). Again, most of the data on the CRD comes from Forms U-4 and U-5.

Although FINRA Notice to Members (“NTM”) 17-42 is disguised as seeking comment, it is not hard to see where FINRA is going. In 2008, FINRA adopted Rule 12805 to require that arbitrators conduct additional fact-finding before they could order expungement. In 2013, FINRA believed that too many expungements were being granted.  They, therefore, came out with guidance seeking to discourage arbitrators from granting expungement.

The current standard applicable in FINRA Arbitration is contained in FINRA Rule 2080. This rule states that expungement should only be granted when the allegation or claim is factually impossible, clearly erroneous, and false or if the associated person (“AP”) was “not involved in the alleged investment-related sales practice.” Currently, a majority of the arbitrators can vote to expunge material, and an AP named in a customer arbitration need not seek expungement right away.

Below are the proposed changes sought by FINRA:

  • Prohibit APs from seeking expungement in a court of law;
  • Increase the expungement arbitration filing fee up to $1,425 minimum;
  • Add a higher standard, i.e., that the disputed info must also have “no investor protection or regulatory value” and require a written explanation;
  • Make arbitrator votes for expungement unanimous;
  • Limit the opportunity of APs named in customer arbitration to seek expungement during the hearing of the underlying dispute and not afterwards;
  • No longer allowing the AP seeking expungement to appear by phone, but either show up in person or by video conference. Strangely, customers who filed an arbitration could appear by telephone during an expungement hearing;
  • Only give APs who are named in a customer complaint that does not develop into an arbitration 1 year to seek expungement. APs who cases are settled would only have 1 year to seek expungement from the date FINRA closes the case; and
  • Expungements sought after the dispute to be decided under the industry arbitration code and require APs to name their former firm as a respondent in such arbitrations.

Leave a Reply

Your email address will not be published. Required fields are marked *