The Financial Industry Regulatory Authority (FINRA) submitted a new amendment to its proposed rule changes concerning the process of expunging customer dispute information, delaying the final ruling from the Securities and Exchange Commission (SEC). Merely one day before the SEC was set to issue a ruling on this proposal, FINRA filed an amendment that included three proposed modifications designed to tighten this process even further. Financial advisors and brokerage firms are expressing concerns about these additional requirements and restrictions, as they worry the new rules will make it even harder to have inaccurate or downright false customer dispute information expunged from the Central Registration Depository (CRD) and the publicly available database, BrokerCheck. Here’s the latest on these proposed amendments and how, if adopted, they could affect your ability to seek or obtain an expungement request.
Understanding the Initial Proposed Rule Changes
At the end of July 2022, FINRA filed proposed rule changes with the SEC. FINRA sought to clarify and tighten the requirements for expungement requests in an attempt to further protect investors and the public from unscrupulous firms and agents. According to this initial proposal, the changes would address several aspects of the expungement request process, such as:
- Requiring that straight-in requests be decided by a three-person panel composed of experienced and qualified public arbitrators (selected randomly from a roster)
- Prohibiting parties from agreeing to fewer than three arbitrators, striking any of the selected arbitrators, stipulating to the removal of an arbitrator, or stipulating to the use of pre-selected arbitrators
- Notifying state securities regulators of expungement requests and encouraging them to attend and participate in expungement hearings
- Imposing strict limits on filing straight-in requests
- Update and codify best practices for arbitrators and parties involved in the expungement process
- Require unanimous agreement of the arbitrator panel to grant expungement relief
- Establish procedural requirements for filing expungement requests
FINRA elicited public comments on this proposal, extending the deadline to November 11, 2022. However, the significant volume of public feedback prompted FINRA to file a new amendment to modify these proposals, which they submitted to the SEC on November 10—the day before the deadline.
Changes to FINRA’s Proposed Amendments
Industry advocates provided vocal feedback to FINRA regarding their initial proposal. In response, FINRA announced that it had amended some of these proposed changes to tighten the expungement process further. Essentially, this “Amendment 1” would modify the proposed rule changes in three significant ways.
Encouraging All Parties to Participate in Expungement Hearings
According to the document, additional language would be added to clarify how FINRA would encourage more active participation from all involved parties during the expungement request process. The text specifies that the rules would be modified “to state that all customers whose customer arbitrations, civil litigations or customer complaints are a subject of the expungement request are entitled to attend and participate in all aspects of the prehearing conferences and the expungement hearing.”
Clarifying the Role of Arbitrators
Another proposed modification addresses the rules and procedures the arbitration panel must follow during the expungement request process. Under the proposed amendment, “a panel shall not give any evidentiary weight to a decision by a customer or an authorized representative not to attend or participate in an expungement hearing when making a determination of whether expungement is appropriate.” This means that the panel cannot interpret a party’s absence as relevant to their deliberations regarding whether to grant an expungement request.
Addressing Financial Advisors’ Histories
FINRA seeks to implement another modification that addresses a financial advisor’s ability to pursue an expungement request if the information stems from a previous legal dispute. The text of the proposed change states, “an associated person shall not file a claim requesting expungement of customer dispute information from the CRD system if the customer dispute information is associated with a customer arbitration or civil litigation in which a panel or court of competent jurisdiction previously found the associated person liable.”
Trusted Legal Guidance When You Need It Most
Now that FINRA has introduced these additional proposed modifications, the timeline for the SEC to issue its final ruling has been extended. For now, industry experts expect this decision to arrive in early 2023, provided that more public concerns or issues do not arise before then. If you have been the victim of an unfair or baseless customer complaint, it’s natural to feel frustrated and worried about how this disclosure will impact your professional reputation. Your best option is to enlist the guidance of a trusted and understanding securities law attorney who can assess your situation and help you determine the best course of action. Together, you can identify a strategic approach to help you achieve your goals and keep your future as bright as possible.
If you need help pursuing a FINRA expungement request, call Judex Law, LLC, at (303) 523-4022 to discuss your situation with a trusted and friendly securities law attorney.