In recent years, the Financial Industry Regulatory Authority (FINRA) has proposed several rule changes and enacted revised protocols impacting a variety of issues. Many changes are happening at once, which makes it difficult to keep up with the constantly shifting procedural amendments and updates. The most significant rule change affecting the process of expunging customer dispute information occurred on April 12, 2023, when the Securities and Exchange Commission (SEC) issued an order granting accelerated approval of FINRA’s proposed rule change. These amendments aim to reshape the previous process for obtaining expungements, which has many financial advisors and member firms concerned about how limiting and restrictive these new rules will be. This post will explore some of the major takeaways from the SEC’s approval of FINRA’s proposed rule changes to the expungement request process. We will also look at the most recent FINRA arbitration case filings and trends to get a sense of the current landscape. As a member firm or financial advisor, it’s important to recognize that you can turn to a trusted and knowledgeable securities law attorney at any time to discuss your concerns or gain a clearer understanding of the potential impact of these newly approved rule changes.
Key Takeaways From the SEC’s Release
In a release issued on April 12, 2023, the SEC provides details about FINRA’s recently filed proposed rule changes, ultimately stating, “the proposed rule change (SR-FINRA-2022-024), as modified by Amendments Nos. 1 and 2, [should] be, and hereby is, approved on an accelerated basis.” Under these amended rules, the process for initiating and pursuing expungement requests will change in several ways. FINRA’s Proposal puts forth seven significant changes to the expungement request process:
- Requiring straight-in requests be decided by a three-person panel that is randomly selected from a roster of experienced public arbitrators with enhanced expungement training;
- Prohibiting parties to straight-in requests from agreeing to fewer than three arbitrators to consider the expungement request, striking any of the selected arbitrators, stipulating to an arbitrator’s removal, or stipulating to the use of pre-selected arbitrators;
- Providing notification to state securities regulators to attend and participate in expungement hearings in straight-in requests;
- Imposing strict time limits on the filing of straight-in requests;
- Codifying and updating 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 and evidence relevant to the expungement request;
- Requiring the unanimous agreement of the panel to issue an award granting expungement relief;
- Establishing procedural requirements for filing expungement requests, including for on-behalf-of requests.
The SEC’s approval of these proposed changes signals a new era of tightened and more focused procedures governing the expungement request process. As member firms and individual advisors adapt to these amendments, it can be helpful to seek guidance and clarification from securities law attorneys who can assess and explain how these rules may affect your unique situation.
Breaking Down the Latest FINRA Arbitration Statistics
According to the most recent data, arbitration case filings between January and May 2023 show a 37 percent increase from the number of filings during the same five-month period in 2022. Additionally, customer-initiated claims rose by 20 percent (as compared to the same period in 2022). Let’s take a closer look at what some of the statistics reveal about the current and near-future FINRA case filing trends.
Virtual Arbitration Still Going Strong
Since the postponement of in-person hearings due to the COVID-19 pandemic, 1,460 arbitration cases have held one or more hearings using Zoom. Between January and May 2023, there has been a total of 651 customer and intra-industry contested motions for virtual hearings. Sixy-six percent of these motions have been granted, while 34 percent have been denied. Still, these robust numbers indicate that virtual tools remain a viable option for handling at least one hearing this way, minimizing the need for in-person hearings at every stage of the process.
Reducing in Turnaround Time From 2022 to 2023
Interestingly, the turnaround time between filing a new case and resolving or closing it has reduced from 2022 to 2023. In 2022, regular hearing decisions took approximately 19.1 months to conclude, falling to 18.6 months in 2023. Special proceeding decisions fell even more sharply between 2022 and 2023 (by a difference of 18 percent). Even though more cases have been filed in 2023 so far, the turnaround time is improving overall.
Most Common Controversy Types in Customer Arbitrations
So far, 2023 has seen an increase in cases involving breach of fiduciary duty (621 cases in 2023, as compared to 485 in 2022). This controversy type is by far the most common in customer arbitrations, followed by negligence (565 cases served), breach of contract (465 cases served), failure to supervise (464 cases served), misrepresentation (442 cases served), suitability (382 cases served), omission of facts (369 cases served), fraud (282 cases served), violation of Blue Sky laws (185 cases served), breach of regulation BI (177 cases served), manipulation (98 cases served), elder abuse (84 cases served), unauthorized trading (78 cases served), errors-charges (71 cases served), and churning (43 cases served).
The Top Security Types Involved in 2023 Customer Arbitrations
The top fifteen security types cited in customer arbitrations are as follows: Common stock (169 cases), corporate bonds (111 cases), mutual funds (93 cases), real estate investment trust (79 cases), options (62 cases), private equities (38 cases), preferred stock (34 cases), exchange-traded funds (30 cases), municipal bond funds (30 cases), annuities (29 cases), variable annuities (27 cases), limited partnerships (25 cases), 401(k)s (22 cases), structured products (18 cases), and business development companies (17 cases).
Helping You Identify the Most Strategic Path Forward
In light of the significant changes that have just moved through the securities industry, it’s natural to feel confused about what these amendments mean for you. Reach out to a trusted and experienced securities law attorney to discuss the specifics of your situation. Together, you can determine the most strategic path forward to keep your reputation and livelihood as bright as possible.
If you need help pursuing a FINRA expungement request, Judex Law, LLC, is here to help. Call (303) 523-4022 today to discuss your options with an experienced and caring securities law attorney.