FINRA’s Newly Enacted Rules Lead to Fewer Expungement Requests From Advisors

Professionals throughout the securities industry are still working through the implications of recently adopted amendments enacted by the Financial Industry Regulatory Authority (FINRA). FINRA defines itself as a “not-for-profit organization” that aims to “work towards finding common solutions to create a regulatory environment that promotes collaboration, innovation, and fairness.” To accomplish this goal, FINRA proposed a substantial number of amendments to protect the public from member firms and individual brokers acting in bad faith. Although this aim is honorable, these amendments (that were formally approved by the Securities and Exchange Commission a few months ago) have added several restrictions to the expungement request process. As a result, fewer advisors have pursued expungement requests through FINRA’s Alternative Dispute Resolution (ADR) services. According to some estimates, fewer than 20 requests for the removal of customer dispute information from online records (including BrokerCheck) have been submitted during the first quarter of 2024. This number falls substantially shorter than the typical number of requests made during the same period in previous years. Unfortunately, many financial advisors are encountering greater challenges in obtaining successful expungement requests. Let’s take a look at how FINRA’s newly adopted changes have impacted the number of expungement requests and how seeking the guidance of a highly qualified and experienced Colorado securities law attorney can help support you during this daunting process.

Key Changes to FINRA’s Expungement Request Process

As of October 16, 2024, FINRA’s new guidelines and policies governing the expungement request process have been in effect. Essentially, FINRA seeks to prevent member firms and individual advisors who have acted in bad faith from having customer dispute information removed from the Central Registration Depository (CRD) and from their BrokerCheck profiles. By imposing strict rules and narrowing the criteria pertaining to when an expungement request can be granted, FINRA hopes to keep members of the public safe and informed about the activities, histories, and reputations of the firms or advisors they choose to work with. There are several amendments, but some of the most significant ones that appear to have had the greatest impact on the volume of expungement requests made in recent months include the following changes.

FINRA Imposes Stricter Time Limits

Some of the most noteworthy changes to FINRA’s expungement request involve the addition of stricter time limitations. For those seeking straight-in requests for the expungement of dispute information, FINRA’s amended rules clarify that “DRS will deny the arbitration forum to an expungement request if the request is filed: (1) more than two years after the close of the customer arbitration or civil litigation associated with the customer dispute information; or (2) more than three years after the date the customer complaint was initially reported in CRD (if the customer complaint does not evolve into a customer arbitration or civil litigation.” With the adoption of these new provisions, individuals must observe a much shorter window in which to make an expungement request through FINRA’s DRS process.

More Involvement From State Securities Regulators

Another significant change to FINRA’s codes of arbitration procedures stems from FINRA’s efforts to make the expungement process more transparent. Under the revised roles, FINRA now requires “notification to state securities regulators of expungement requests filed in the DRS arbitration forum, and for straight-in requests, providing a mechanism for state securities regulators to attend and participate in expungement hearings as a non-party in person or by video conference.” However, these efforts can slow down the expungement request process considerably, as more parties and participants will need to be accommodated.

Requiring Unanimous Approval by a Three-Person Panel

Under the newly revised and enacted rules, FINRA requires nearly all expungement cases to be decided by the unanimous approval of a three-party arbitration panel of specially trained and qualified arbitrators. In previous years, a simple majority was sufficient in order to grant expungement relief. Now, all three arbitrators must vote in favor of granting an expungement request—any vote short of a unanimous approval means that the request will not be granted.

The Impact of FINRA Expungement Rule Changes

As soon as the new rules took effect, industry experts paid close attention to how these amendments and revisions would impact the expungement relief process. From a financial perspective, these rules tend to make the expungement request process considerably more expensive. New rule changes have reshuffled many of the associated fees, shifting the financial burden from brokerage firms to individual financial advisors. Those who are starting to consider filing an expungement request may find themselves facing considerable fees, costs, and other obstacles, which can deter them from moving forward with the process. Additionally, the shortened window can invalidate and disqualify many expungement requests. Regardless of your circumstances and goals, it’s worth discussing your options with a knowledgeable and caring securities law attorney before you become discouraged from pursuing your expungement request.

Advantages of Working With a Lawyer for Financial Advisors

If you are having difficulty grasping the nuances and implications of FINRA’s newly enacted rule changes, you are far from alone. Since they have only been in effect for under a year, it’s too early to create a comprehensive list of every impact these rules have (or will have) on the financial industry. If you are struggling with an unfair disclosure that poses a threat to your professional reputation or career, please consider enlisting the guidance of a knowledgeable and experienced securities law attorney who understands the importance of working with every client to identify the most appropriate and strategic legal solutions. With a proven track record of successfully defending professionals throughout the financial and securities industry from consumer complaints, attorney Tosh Grebenik is ready to help you assess your best options. Based in Colorado, Tosh handles arbitration matters and FINRA expungement requests all over the country. Now’s the time to learn more about your options for keeping your professional future as bright as possible.

If you are struggling with how to pursue an expungement request to have erroneous or misleading customer dispute information removed from BrokerCheck, give Judex Law, LLC, a call today at (303) 523-4022 to discuss your options with a highly qualified and dedicated securities law attorney.

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