As a financial advisor, you have taken steps to keep your professional reputation as strong as possible. Your career depends upon an upstanding reputation, as your clients need to trust in your ability to serve them and protect their best interests at all times. Unfortunately, a disgruntled customer may file a complaint against you at any time (and for any reason). Even baseless or downright false allegations can cause lasting damage to your professional image, regardless of their accuracy or validity. Since the Financial Industry Regulatory Authority (FINRA) aims to protect the best interests of the public, this body does not investigate the validity of complaints before they appear on an individual broker’s profile.
This means that erroneous or exaggerated customer dispute information can appear in the Central Registration Depository (CRD) and on BrokerCheck, a free online tool that allows the public to view information about a member firm or individual broker. Instead of investigating the merit of a complaint before making it visible and accessible to the public, FINRA errs on the side of protecting the public from firms and advisors acting in bad faith. It’s up to the individual broker to seek the expungement of customer dispute information, which can only be accomplished through a rigorous process. Moreover, FINRA’s expungement request process recently implemented several amendments that can make these requests even more challenging to secure. Before you become discouraged, it’s best to discuss your options with a trusted and experienced securities law attorney who can help you identify the most strategic path forward. This post can serve as a general overview of the expungement request process in light of the newly enacted rule changes that took effect in 2023.
How Expungement Works, According to FINRA
First, it’s helpful to understand what an expungement means and how FINRA allows certain qualifying individuals to obtain expungement relief after moving through a series of steps. Essentially, FINRA will only honor an expungement request if one of the following is proven to 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. Additionally, it’s essential to understand that FINRA will not determine whether or not to grant expungement relief; this duty is up to an independent panel of specially trained arbitrators to decide. FINRA will only move forward with awarding an expungement request if it receives a court order directing the expungement of the information or if a court confirms an arbitration award authorizing such expungement relief.
New Rules Governing the Expungement Request Process
In recent years, FINRA announced a series of amendments to clarify the expungement request process. When the Securities and Exchange Commission (SEC) approved these amendments, they took effect in October of 2023. These changes revised FINRA’s established Codes of Arbitration Procedure to limit the number of expungement requests, as FINRA believes that doing so would remain in the public’s best interests. Although these new rules have been in effect for just a few months, they stand to complicate the process in several ways. Below are just a few of the most significant changes and their potential impact on those interested in pursuing expungement relief through FINRA’s alternative dispute resolution (ADR) services.
Establishing a Three-Person Arbitration Panel
Under the newly adopted rules, straight-in expungement requests must be decided by a three-person panel of specially trained and experienced arbitrators. Qualified arbitrators must participate in enhanced expungement training, after which they will be added to a Special Arbitrator Roster. When a dispute arises, the three arbitrators will be randomly selected from the roster to oversee and rule on the matter.
Prohibiting Parties From Manipulating the Panel of Arbitrators
In order to keep an expungement request as fair and impartial as possible, newly amended rules prohibit the parties from agreeing to fewer than three arbitrators to consider the request. Moreover, the parties may not strike any of the selected arbitrators or stipulate to an arbitrator’s removal, nor can the parties stipulate to the use of pre-selected arbitrators.
Encouraging More Transparency
The new rules also aim to encourage more active involvement from various parties involved in the expungement request. For instance, the rules require the notification of an expungement action to state securities regulators as well as a mechanism for state securities regulators to attend and participate in expungement hearings. FINRA hopes that more parties will be made aware of expungement requests and that they will have sufficient time to decide whether to attend or participate in these proceedings.
Unanimous Agreement of the Panel to Award Expungement Relief
When the panel of three Special Arbitrators deliberates an expungement request, such relief may only be granted when the panel unanimously agrees to do so. The arbitrators may take time to reach an agreement, but FINRA will only grant expungement relief once the panel unanimously makes this decision.
How a Securities Law Attorney Can Assist You
Learning that a customer has lodged a complaint against you can be a disruptive and concerning experience. Suddenly, your professional reputation becomes uncertain, and you wonder how you can set the record straight and defend yourself against baseless or erroneous accusations. Although FINRA does not require financial advisors to hire an attorney to navigate the expungement request process, doing so is highly recommended. With an experienced and knowledgeable securities law attorney by your side, you can feel empowered to make each decision with greater certainty and confidence. Your legal advocate will answer your questions, address your concerns, and support you along the road to expungement relief. Now is not the time to leave your career and reputation up to chance—reach out to a caring and trusted securities law attorney today to explore your options.
If you need help having customer dispute information removed from BrokerCheck and the CRD, Judex Law LLC is ready to guide you through the FINRA expungement request process. Call (303) 523-4022 to get started with an experienced and friendly securities law attorney today.
