By now, member firms and individual financial advisors are aware of the Financial Industry Regulatory Authority (FINRA) and its recently enacted revisions to the expungement request process. These rule changes were hotly debated in the years leading up to the Securities and Exchange Commission (SEC)’s approval of the proposed amendments. According to FINRA, this entity “amended its rules to significantly enhance the expungement process,” which took effect on October 16, 2023. There were several components to this overhaul, including establishing a Special Arbitratory Roster, imposing strict time limits for seeking straight-in expungement requests, and providing pathways for customers and state securities regulators to participate more actively in the expungement request process. Now that these amended rules have been in place for some time, it’s worth assessing the ways in which these changes have affected the expungement request process. Generally speaking, the number of successful straight-in expungement request cases has dropped since the implementation of FINRA’s amended rules and procedures.
As a financial advisor, receiving a biased, unfair, or downright false customer complaint can be a devastating and frustrating experience. Since FINRA does not investigate the merit of the dispute before adding the information to the Central Registration Depository (CRD) or on the publicably searchable database BrokerCheck, an advisor’s reputation can suffer significantly once this customer dispute information is made visible. Even though the new FINRA expungement reforms have been making it slightly more challenging to have customer dispute information expunged from the CRD and BrokerCheck, it’s still worth discussing your options with a dedicated and highly experienced securities law attorney. Let’s take a look at how to file an expungement request and why it’s highly recommended that you partner with a knowledgeable and supportive legal advocate when navigating the amended FINRA expungement process.
Measuring the Impact of the New FINRA Expungement Rules
First, it’s worth assessing the most recent data to get a sense of how these newly enacted rules are affecting the expungement request process. Before the expungement reforms were put into effect, brokers were generally successful in their expungement requests, with estimates showing that FINRA arbitrators granted these requests about 90 percent of the time. With these newly revised rules in place, the data is showing an expungement relief rate of roughly 66 percent. According to the president of the Public Investors Advocate Bar Association, “The significant drop in expungement recommendation rates in straight-in cases is a welcome sign that our advocacy has had its intended effect.” In other words, the revisions to the FINRA expungement rules are having a noteworthy impact on the success rate of expungement relief requests.
The FINRA Rule Changes That Affect Expungement Requests
There are many reasons that broker-dealers and financial advisors may be finding it more difficult to obtain expungement relief under FINRA’s newly revised rules. In general, professionals through the financial industry may be taking a more cautious approach to seeking expungement relief, especially if they are uncertain about how these procedural changes will affect their case. Below are just a few of the factors that may be contributing to a decline in the number of expungement request filings and a lower success rate for those who attempt to obtain expungement relief.
FINRA Imposes Stricter Time Limits
One of the most significant rule changes to the expungement request process is the imposition of stricter time limits in which an applicant may file for expungement relief. Under the revised rules, brokers must file a straight-in expungement request within two years of the conclusion of a customer arbitration or litigation. Or, if the matter concerns a customer complaint being reported to the CRD, the advisor has three years from the date of the complaint in which to file an expungement relief request. These stricter time limits automatically render many cases ineligible for expungement relief, resulting in a decrease in the number of expungement filings since the amendments were implemented.
Unanimous Decision to Grant Relief
Another notable rule change to the expungement process is the requirement that a panel of three specially appointed arbitrators unanimously agree to grant expungement relief. Before these revised rules, the individual seeking expungement relief only needed to make their case before a single arbitrator, who then decided whether to grant relief. Now, the panel of three arbitrators must be in agreement with one another in order to honor the expungement relief request. This is a higher bar to clear for those seeking expungement relief, which may deter some financial advisors from initiating this process.
Increased Costs For Seeking Expungement Relief
From a financial perspective, navigating the expungement process is more costly than before. FINRA’s newly adopted rules imposed minimum filing fees for those seeking expungement relief, making this process more expensive to initiate. In addition to the financial burden associated with filing an expungement request, this process can also be time consuming and stressful—which can prompt brokers to think twice about whether it’s worth it to move through this cumbersome process.
Mandatory Participation From Brokers
Prior to the amended FINRA expungement process, the individual seeking expungement had a few more options for the degree to which they participated in the process. For instance, they had the option to participate by telephone as the process moved forward. However, FINRA’s new rules compel brokers to appear either in person or by video conference to make sure that they have a more direct and active role in these proceedings. Moreover, other parties, such as the customers and state regulators, are encouraged to attend and participate more fully in these matters.
Learn More About Expunging Customer Dispute Information Today
When it comes to keeping your professional future bright and promising, your reputation plays a key role in cultivating meaningful relationships with your clients. If you are struggling with an unfair disclosure or misleading customer complaint, now’s the time to discuss your options with a highly qualified and skilled securities law attorney. As a certified mediator and FINRA-certified arbitrator, attorney Tosh Grebenik has successfully handled numerous state regulatory responses and defended professionals in the financial securities industries from consumer complaints. He’s ready to work with you to keep your future as bright as possible, so get in touch today.
While FINRA’s newly amended rules for the expungement request process have had a measurable impact, you can still move through the process and seek to have erroneous customer dispute information removed from your record. Reach out to Judex Law, LLC, today by calling (303) 523-4022 to get started with a highly qualified and friendly securities law attorney.