How FINRA’s Revised Rules Impact Special Arbitrators and Expungement Requests

As a professional in the securities industry, you are likely aware of the numerous revisions and updates that recently went into effect. The Financial Industry Regulatory Authority (FINRA) amended its rules that govern the expungement request process in an effort to limit the number of financial advisors who are able to obtain expungement relief. Although FINRA states that these new restrictions are in the best interest of the public, member firms and individual securities advisors have expressed concerns about how these new rules unfairly burden industry professionals with erroneous or false customer dispute information that threatens their reputations and employment prospects. Some of these newly enacted rules, which took effect on October 16, 2023, impose strict time limits for seeking expungement relief, require notification to state securities regulators of expungement requests, and establish a Special Arbitrator Roster to decide straight-in requests.

It’s worth taking some time to understand and explore how arbitrators are selected and trained to serve as Special Arbitrators in FINRA’s Dispute Resolution Services (DRS) branch. Let’s take a look at how DRS trains Special Arbitrators, the rules governing arbitrator disclosures, and how these processes may affect your ability to seek expungement relief in the future. Regardless of your specific case, you can explore your options with a dedicated and experienced securities law attorney by your side to guide you through every step of the expungement request process.

Navigating the FINRA Expungement Request Process

In order to have erroneous or unfair customer dispute information expunged from the Central Registration Depository (CRD) and from BrokerCheck, a financial advisor must meet certain eligibility requirements. FINRA only grants expungement relief under narrow circumstances, which means that one of the following must be true:” (1) The claim, allegation or information is factually impossible or clearly erroneous; (2) The associated person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or (3) The claim, allegation or information is false.” Those seeking expungement relief must provide clear and convincing evidence in support of one of these claims in order for FINRA to grant relief. When it comes to straight-in requests, FINRA’s newly enacted rules dictate that a panel of three arbitrators must “unanimously agree” to award expungement based on the grounds mentioned above. Moreover, the panel of three arbitrators must be randomly selected from a Special Arbitrator Roster, and the parties involved in the expungement request case are prohibited from “ranking the arbitrators, stipulating to an arbitrator’s removal, or stipulating to the use of pre-selected arbitrators—the parties won’t have a say in who will decide the expungement request.” Once the matter is decided, FINRA will only expunge customer dispute information from the CRD when it receives a court order directing it to do so or a court confirms an arbitration award authorizing the expungement relief.

Special Arbitrator Training for FINA Expungement Requests

Arbitrators who wish to oversee expungement requests and serve in this capacity must participate in specialized training before they can be added to the roster. According to FINRA’s recently released guidelines, “arbitrators have an obligation to disclose factors that might give rise to an appearance of partiality or bias.” To this end, Rule 12405(a)(2) compels arbitrators to disclose any “existing or past financial, business, professional, family, social, or other relationships or circumstances with any party [or] andy party’s representative…that are likely to affect impartiality or might reasonably create an appearance of partiality or bias.” Simply put, any individual who wants to serve as an arbitrator must disclose any potential sources of bias that could affect their ability to remain neutral and impartial. Moreover, those selected for service must conduct a thorough check for conflicts and disclose any factors that could impair their ability to remain impartial before they accept the case. Below are some of the questions that potential arbitrators will need to answer as they complete the “Personal Disclosures” checklist.

Professional, Social, or “Other” Relationships With Counsel

Potential arbitrators completing the first question must determine whether they have any social, professional, or other relationships with counsel for any of the parties involved in the arbitration (or their law firms). They can view the names of the attorneys and their corresponding law firms to identify any familiarity with these parties. Even some familiarity with individual attorneys or the law firms requires disclosure, and potential arbitrators are duty-bound to do so.

Professional, Social, or “Other” Relationships With Parties or Employers

Next, the aspiring arbitrators must evaluate whether they have any social, professional, or other relationships with the parties involved in the arbitration matter (or their respective employers). If a potential arbitrator finds that they have some familiarity with a party or an employer, they must disclose it accordingly in this section.

Other Considerations or Disclosing Potential Conflicts

As the arbitrator moves through the questions, they must disclose any relationships with a relative of any of the parties or counsel in the arbitration or with any of the other arbitrators assigned to this matter. Ultimately, FINRA seeks to keep arbitrators as impartial as possible, minimizing any potential conflicts of interest that may lead to an invalid or biased outcome. The last question asks potential arbitrators whether they are currently serving as arbitrators in another proceeding that involves any of the parties or counsel (or their employers) that will be involved in the proposed matter. FINRA reminds arbitrators of their duty to disclose any relevant information in order to preserve the integrity of its arbitration processes and procedures.

Obtaining a FINRA Expungement

If you are struggling with false or inaccurate information on your BrokerCheck profile, you have the right to explore your options for obtaining expungement relief. As daunting as this prospect may seem, it’s essential to recognize that you do not have to navigate every step on your own. Enlisting the guidance of a highly qualified and experienced securities law attorney is the best way to maximize your chances of obtaining your desired outcome. Your attorney will work closely with you to answer your questions, address your concerns, and pursue a successful resolution. If you are interested in expunging customer dispute information from the CRD and BrokerCheck, get started with a knowledgeable and trusted securities law attorney today.

Whether you are struggling with an unfair or damaging disclosure or you simply want to learn more about FINRA’s expungement relief request process, Judex Law, LLC, is ready to assist you. Call our office today at (303) 523-022 to discuss your goals with a highly qualified and knowledgeable securities law attorney.

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