FINRA Seeks to Rein In a Common Expungement Tactic

FINRA’s paper points out that straight-in requests “present inherent difficulties.” Arbitration panels “deciding straight-in requests issue awards containing expungement relief more often than panels deciding expungement requests made in customer-initiated arbitrations.”

FINRA will only expunge pursuant to a court order. “Thus, a broker can get an award that contains expungement relief, but they still have to go to court to get that award confirmed in order for us to actually expunge the information from the Central Registration Depository,” FINRA states.

FINRA’s paper noted that from January 2016 to December 2021, an arbitrator or panel issued awards containing expungement relief in response to 58% of requests made during a customer arbitration versus 84% of straight-in requests.

The Public Investors Advocate Bar Association, or PIABA, has maintained that brokers continue to “game” BrokerCheck with various tactics, including straight-in expungements.

Specifically, FINRA explains that its proposed rule change would:

require that a straight-in request be decided by a three-person panel that is randomly selected from a roster of experienced public arbitrators with enhanced expungement training;
prohibit parties to a straight-in request from agreeing to fewer than three arbitrators to consider their expungement requests, striking any of the selected arbitrators, stipulating to an arbitrator’s removal, or stipulating to the use of pre-selected arbitrators;
provide notification to state securities regulators of all expungement requests and a mechanism for state securities regulators to attend and participate in expungement hearings in straight-in requests;
impose strict time limits on the filing of straight-in requests;
codify and update the best practices in the Notice to Arbitrators and Parties on Expanded Expungement Guidance applicable to all expungement hearings, including amendments to establish additional requirements for expungement hearings, to facilitate customer attendance and participation in expungement hearings and to codify the panel’s ability to request any evidence relevant to the expungement request;
require the unanimous agreement of the panel to issue an award containing expungement relief; and
establish procedural requirements for filing expungement requests, including for on-behalf-of requests. The proposed rule change would also amend the Customer Code to specify procedures for requesting expungement of customer dispute information during simplified arbitrations.