What the Latest FINRA Amendments to the Codes of Arbitration Procedure Mean for Expungement Requests

As a financial advisor, you have likely heard of the recently approved changes to the Financial Industry Regulatory Authority’s (FINRA’s) expungement request process. The last few years have seen the drafting of numerous amendments to FINRA’s Codes of Arbitration Procedure that govern the expungement of customer dispute information. FINRA’s mission is to protect the public and oversee the brokerage industry to ensure safety and fairness. When the Securities and Exchange Commission (SEC) formally approved FINRA’s proposed changes on August 11, 2023, many industry experts expressed their concerns about how these amendments would further complicate the expungement request process for financial advisors seeking to have unfair or baseless customer dispute information removed from their BrokerCheck profiles. As these new changes start to take effect this fall, it’s essential to understand how these rules may affect your ability to pursue an expungement request process. It’s always in your best interest to enlist the support of an experienced and trusted securities law attorney to help you identify the most strategic path forward. Let’s take a look at what some of these newly enacted rules mean and how they could impact your decision to pursue an expungement request through FINRA’s arbitration services.

Why FINRA Proposed Amendments

First, it’s helpful to understand the reasoning behind these proposed changes to FINRA’s expungement request process. Since FINRA’s aim is to protect the public from financial advisors or member firms acting in bad faith, it allows customers to file complaints when concerns arise. Any customer dispute information that is filed appears in the Central Registration Depository (CRD) and on BrokerCheck, a publicly searchable database. Unfortunately for individual advisors, FINRA does not investigate the validity of the complaints, meaning that meritless, baseless, or downright false allegations can appear on a broker’s profile and damage their professional reputation. An advisor seeking to expunge customer dispute information must take the matter before FINRA’s arbitration forum, where independent arbitrators will determine whether to grant expungement relief to the petitioner. This process was already cumbersome and stressful for those seeking expungement relief, and the newly enacted rule changes intend to complicate this process even further. Ultimately, FINRA wants to limit the number of expungement requests granted to financial advisors in order to highlight this body’s commitment to protecting and defending the public’s best interests. According to FINRA, adding more rules, regulations, and restrictions establishes more transparency and signals a commitment to ensuring public safety.

The Most Significant Changes to FINRA’s Arbitration Process

FINRA issued Regulatory Notice 23-12 in August 2023 detailing the rule changes and their expected impact. According to this document, all of the amendments went into effect on October 16, 2023. Below are some of the most significant changes to FINRA’s Codes of Arbitration Procedure concerning expungement request matters.

Establishing a Three-Person Panel of Arbitrators

Under the new rules, straight-in requests must be decided by a three-person panel of arbitrators. When a case emerges, three arbitrators will be randomly selected to oversee the matter. The list of arbitrators will include highly qualified individuals who have undergone enhanced expungement training. As of November 1, 2023, FINRA’s Department of Resolution Services is still working with a third-party consultant to conduct an updated review of the list selection algorithm for determining a three-person panel. Additionally, the new rules prohibit the parties involved in arbitration from agreeing to fewer than three arbitrators to consider their expungement requests, striking any of the selected arbitrators, stipulating to the removal of an arbitrator, or stipulating to the use of pre-selected arbitrators.

Adding More Transparency to the Arbitration Process

The new rules also encourage more transparency and participation in the arbitration process. State securities regulators will receive more direct notification of all requests to expunge customer dispute information. These regulators will also be encouraged to attend and participate in expungement hearings in straight-in requests. Moreover, the amendments impose strict time limits on the filing of straight-in requests to keep all matters current and timely.

Updating and Codifying Best Practices

FINRA also included updates to the procedures for requesting expungement of customer dispute information during simplified customer arbitrations. It intends to codify and update the best practices in the Notice to Arbitrators and Parties on Expanded Expungement Guidance that governs all expungement hearings. By using more specific language and updating outdated information or unclear instructions, FINRA aims to standardize these best practices and rules of procedure to ensure greater transparency and consistency in all expungement matters.

Requiring Unanimous Agreement Among Arbitrators

One of the most noteworthy changes involves the new requirement for unanimous agreement among the arbitration panel. In order to grant expungement relief, the three-person arbitration panel must unanimously agree to honor this request.

How to Seek an Expungement Request

Learning that a customer has lodged a complaint about you can be devastating, especially if there is no truth or legitimacy to their claims. Suddenly, you worry that your reputation will suffer because of this false allegation that is now a permanent part of your BrokerCheck profile. Before you lose all hope, reach out to a dedicated and experienced securities law attorney who can assess the details of your situation and determine the most strategic course of action. Even though FINRA has added more rules and restrictions to the expungement request process, you still have the right to pursue a claim. Your knowledgeable legal counsel will guide you through every step of the expungement request process, answering your questions and addressing your concerns at every turn. Certified mediator and FINRA-certified arbitrator Tosh Grebenik has the experience and tools necessary to provide you with the highest level of legal guidance during this challenging time. He has defended professionals in the financial and securities industries from wrongful customer complaints, and he is prepared to represent your best interests and keep your reputation intact.

If you need help pursuing a FINRA expungement request, consider enlisting the guidance of dedicated and experienced securities law attorney Tosh Grebenik. Call Judex Law LLC today at (303) 523-4022 to discuss your options with an experienced and friendly attorney.

Table of Contents