The landscape of the financial industry is experiencing a seismic shift. After years of anticipation, FINRA has officially adopted several monumental amendments to the codes of arbitration procedure that govern the expungement of customer dispute information requests. Starting on October 16, 2023, financial advisors wishing to have erroneous or false customer dispute information expunged from the Central Registration Depository (CRD) and BrokerCheck will face a massively revised process for pursuing such a request. Although FINRA maintains that its mission is to protect the public from acts of bad faith throughout the financial industry and securities markets, these recently adopted amendments signal a drastic departure from the previous expungement request process. These new rules pose tremendous challenges to financial advisors seeking to have customer disclosures removed from their records, making it much more difficult to obtain a successful expungement request. Essentially, financial advisors no longer enjoy the presumption of innocence in such matters—any customer complaint (no matter how baseless or unfounded) automatically appears on the advisor’s profile and impacts their professional reputation and career in multiple ways. Let’s take a look at how these newly enacted changes may impact financial advisors and what steps you can take to protect yourself and your future as much as possible from harmful customer disclosures.
The Most Notable Rule Changes to FINRA’s Expungement Request Process
On August 11, 2023, FINRA issued Regulatory Notice 23-12, which summarized the amended rules to the expungement request process approved by the Securities and Exchange Commission (SEC). Below are some of the most significant changes to the existing FINRA expungement request process, all of which appear to make the process more cumbersome and confusing for financial advisors seeking to have erroneous or unfounded disclosures removed from their records.
Establishing a Specialized Arbitrator Roster
Under the new rules, a panel of three independent, experienced public arbitrators must now handle expungement requests. These individuals must have received specialized expungement training to handle these matters. Once cleared to serve in this capacity, arbitrators will be added to an official Specialized Arbitrator Roster). When an arbitration matter arises, three arbitrators from this list will be randomly selected to oversee the case.
The Parties Must Adhere to New Rules Governing the Selection of Arbitrators
The parties involved in the arbitration may not settle for fewer than three FINRA-approved arbitrators randomly selected from the official list. Additionally, the new rules prohibit the parties from dismissing any chosen arbitrator for any reason or from selecting arbitrators apart from the randomly generated arbitrators. The parties can no longer stipulate to an arbitrator’s removal, nor can they stipulate to the use of pre-selected arbitrators.
Encouraging State Securities Regulators to Participate in Hearings
Once the new rules go into effect, state securities regulators will become more involved in expungement-related arbitration requests. These regulators will be notified of all requests to expunge customer dispute information, along with an invitation to attend and participate in these hearings.
Strict Time Limits For Expungement Requests
Direct requests will now be subject to strict submission deadlines of two or three years, depending on the facts and nature of the case. These clearly defined time limits also mean that the majority of older disputes will no longer qualify for the expungement request process, preventing advisors from accessing any recourse to have these disclosures removed from their records.
More Nuanced Rules During Expungement Hearings
FINRA also made several updates to its Notice to Arbitrators and Parties on Expanded Expungement Guidance, which impacts all expungement hearings moving forward. Some of these changes include establishing additional requirements for expungement hearings, facilitating customer attendance and participation in every aspect of the expungement hearings, and codifying the panel’s ability to request any relevant evidence. Additionally, the panel may only grant an expungement relief award if it makes this decision unanimously.
Steeper Costs For Advisors Seeking Expungement Relief
The toll on financial advisors seeking the removal of erroneous customer dispute information extends beyond the logistical hurdles and additional stress. Under these newly adopted rules, those seeking expungement relief will face substantial financial charges as they navigate this process. FINRA forum fees alone may exceed $10,000, creating a strong deterrent for those hoping to defend and protect their professional reputations. All of these changes complicate the FINRA expungement request process, making the idea of even trying to have disclosures removed seem overly daunting and intimidating.
Eroding Public Trust in Financial Advisors and Securities Firms
The totality of these amendments essentially erodes public trust in the financial industry. A customer may report a dispute for any reason, regardless of merit or credibility. Unfortunately, financial advisors no longer enjoy the presumption of innocence in these matters—they face the tremendous burden of defending themselves against these claims, no matter how false the customer dispute information may be. However, although these rule changes complicate the expungement request process considerably, obtaining relief is not impossible. Enlisting the guidance of a trusted and experienced securities law attorney is the best way to explore your options and identify the most strategic path forward.
Now’s The Time to Take Action
As the October 16 deadline nears, consider taking action swiftly and strategically. When you enlist the assistance of a seasoned attorney who is well-versed in the nuances of FINRA’s rapidly shifting landscape, you can trust that you and your professional future will be in good and capable hands. If you are ready to have baseless or meritless customer disputes permanently removed from your profile, reach out to Judex Law, LLC, today. Experienced securities law attorney Tosh Grebenik is fully prepared to help you pursue and achieve your desired outcome. No matter what the specific circumstances of your situation may be, you can trust that Tosh will work closely with you to identify the most appropriate path forward.
If you need help defending your reputation by seeking a FINRA expungement request, Judex Law, LLC, is ready to assist you and guide you through every step of the process. Call (303) 523-4022 to discuss your situation with a dedicated and friendly securities law attorney.