FINRA's Expungement Rules Just Got Tougher
FINRA has noted that with a “straight-in expungement,” the broker files an arbitration case against their current or former brokerage firm requesting the expungement of a client complaint. However, the client is not made aware of the request, nor are state regulators.
Under the new rule, state regulators as well as clients would be informed of an expungement request.
The changes under FINRA’s newly approved plan:
Require that a straight-in request be decided by a three-person panel 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;
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.
Problems With ‘Straight-In’ Requests
FINRA has stated 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,” it says.
The regulatory group 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.
