Within the last few years, the Financial Industry Regulatory Authority (FINRA) proposed several changes to its existing rules and procedures. In the summer of 2023, the Securities and Exchange Commission (SEC) formally approved these revised rules, and they officially took effect on October 16, 2023. While these amended rules affect many areas of the financial industry, member firms and individual securities advisors were especially concerned about the changes to FINRA’s expungement request process. FINRA Rule 2080 underwent significant changes, with the goal of limiting the number of expungement requests in order to protect the public from investors and firms acting in bad faith or otherwise compromising the best interests of their clients. Now that a full year has passed since these rule chances were enacted, it’s worth assessing the impact of these amendments. So far, it’s clear that the number of brokers seeking the expungement of customer dispute information from the Central Registration Depository (CRD) and BrokerCheck has fallen considerably. If you are wondering how you can have baseless or inaccurate customer dispute information removed from your BrokerCheck profile, it’s worth discussing your options with a knowledgeable and experienced securities law attorney to determine the most strategic path forward. Meanwhile, let’s take a look at some of the most important rule changes that have taken place and how they have affected financial professionals within the last year.
Key Changes to FINRA Expungement Rules
First, it’s helpful to understand some of the most significant changes that took effect regarding the FINRA expungement request process. One of the most noteworthy amendments concerns stricter time limitations in which a financial advisory may file an expungement request. Under the revised rules, FINRA’s Department of Resolution Services (DRS) will deny expungement requests if the request is filed “more than two years after the close of the customer arbitration or civil litigation associated with the customer dispute information; or more than three years after the date the customer complaint was initially reported in the CRD (if the customer complaint does not evolve into a customer arbitration or civil litigation).” Another new requirement established a Special Arbitrator Roster, defined by FINRA as “a roster consisting of experienced public arbitrators, with additional expungement training.” Each straight-in expungement request must be handled by a panel of three randomly selected arbitrators from the Special Arbitrator Roster. Moreover, the three arbitrators must unanimously agree to grant expungement relief—otherwise the request will be denied. Other changes, such as increasing opportunities for state securities regulators to participate more directly in these proceedings and adding more costs to expungement requests, have also affected the number of expungement request filings since the amended rules have taken effect.
How These Rule Changes Have Affected FINRA Expungement Request Filings
Ever since FINRA’s newly enacted rules took effect in the fall of 2023, the number of brokers filing expungement requests has decreased significantly. According to recently published data, “From the day the rule became effective on October 16, 2023, to December 1, 2024, brokers have filed 143 stand-alone requests for expungement of customer complaints and other disclosures compared to 681 in the same period one year earlier.” Essentially, this marks a 79 percent decrease in the number of expungement request filings since the new rule took effect. However, it’s worth noting that the number of requests increased dramatically right before October 2023, as many brokers rushed to file requests before the amendments took effect. Another reason for the notable decrease in FINRA expungement requests may be that brokers are turning to other venues in order to have customer dispute information expunged from their records. Let’s take a look at how this may be unfolding and how it could affect your options for obtaining a successful FINRA expungement request in the future.
Filing Expungement Requests Directly in Court
It’s important to note that FINRA does not require financial advisors to pursue their expungement request through its arbitration forum. Rather, FINRA must ultimately receive a court order granting expungement relief before it can approve this action. This means that many brokers are filing expungement requests through the court system or through other arbitration forums and then taking the rulings to FINRA. There may be other benefits to pursuing an expungement request outside of FINRA’s DRS system, such as bypassing the requirement to involve state regulators and potentially avoiding having to notify the customer who lodged the initial complaint. Additionally, any awards or explanations can be kept private using independent arbitration forums, in contrast to FINRA’s form (which issues public decisions).
FINRA Must Confirm the Award Before Honoring the Expungement Action
So far, FINRA has not issued any definitive opposition to expungement requests that take place outside of FINRA’s arbitration forum. However, it’s not clear whether any such requests have reached the stage of seeking FINRA’s confirmation of expungement relief awarded by another arbitration forum. However, FINRA has indicated that it plans to notify state regulators whenever an expungement case is filed, regardless of whether the request is handled in FINRA’s arbitration forum or an alternative arbitration setting. No matter what the path towards expungement relief looks like, the party seeking expungement relief must still present FINRA with notice of the court’s approval before the relief can be granted in any official or final capacity.
Learn More About Expunging Customer Dispute Information
As a financial advisor, your professional reputation is vital to your success and longevity. Unfortunately, a baseless, exaggerated, or downright false customer complaint can derail your livelihood and threaten your professional reputation. As overwhelmed and concerned as you may be, it’s essential that you recognize your legal rights and options. Enlisting the guidance and support of a highly qualified securities law attorney is the best way for you to feel empowered to make informed decisions with greater certainty and confidence. If you are interested in learning more about how to request customer dispute expungement in the face of FINRA’s newly enacted and more restrictive rules, working with a trusted and friendly securities law attorney is highly recommended. Together, you can assess the details of your situation and identify the most appropriate course of action that maximizes your chances of obtaining a fair and favorable outcome.
If you have questions about the FINRA expungement request process, please contact Judex Law LLC at (303) 523-4022 to discuss your concerns and options with an experienced and caring securities law attorney.