In mid-September 2020, the Financial Industry Regulatory Authority (FINRA) filed a proposed rule change with the Securities and Exchange Commission (SEC), seeking to amend the current process for handling expungement requests. Since then, FINRA has fielded numerous comments and crafted two amendments to its proposed rule changes. Here’s the latest.
Key Components of FINRA’s Proposed Rule Change
Essentially, FINRA’s proposed rule changes target four aspects of the process for expunging customer dispute information. First, there would be new requirements imposed on expungement requests filed either during an investment-related, customer-initiated arbitration or as a straight-in request. The second proposed change calls for creating a roster of arbitrators with specialized training and experience, from which a three-person panel would be randomly selected to oversee straight-in requests. Third, the agency would establish clear procedural requirements for expungement hearings. The final proposed change would codify and update the best practices included in the manuals and guidelines used by arbitrators and participants.
What the Newly Proposed Amendments Say
In early 2021, the SEC received comments in response to FINRA’s proposal. Many commenters expressed vague support for the proposal as a whole, passing along their suggestions. In response, FINRA released an “Amendment No. 2 to Proposed Rule Change” that incorporates and addresses some of this feedback. For instance, FINRA amended the proposal to “require that the Director notify customers of the time, date and place of any prehearing conferences, in addition to the expungement hearing, and to clarify that customers are entitled to appear at prehearing conferences.” Additionally, FINRA added language to the original proposal stating that the Director “shall provide the notified customers with access to all documents filed in the arbitration that are relevant to the expungement request.”
The Future of FINRA’s Expungement Request Process
As FINRA continues to push forward with these proposed changes to the expungement request process, professionals in the financial services industry may grow increasingly concerned about these implications. While FINRA and the SEC are working on encouraging more customer participation, these changes could make it much more difficult for those facing unfair claims to obtain a successful expungement.
To learn more about how FINRA’s proposed changes to the expungement request process may impact you, call Judex Law LLC at (303) 523-4022 to speak with a dedicated and experienced securities law attorney.