FINRA Floats Tougher Expungement Rules

The Financial Industry Regulatory Authority’s Board on Thursday authorized the regulator to seek public comment on a plan to require more stringent requirements to erase disciplinary actions from BrokerCheck.

Richard Ketchum, FINRA’s CEO, said in a video message after the Board meeting that the rule would “update arbitration rules related to expungement of customer dispute information” from BrokerCheck.

“The changes are part of our ongoing effort to strengthen the expungement regulatory framework,” Ketchum said, adding that the proposal would “codify” current best practices.

For instance, an arbitration panel would be “required to receive a copy of the BrokerCheck report when deciding the expungement request.” Also, the arb panel would be required to provide “more details of its rationale for recommending the expungement request,” Ketchum explained.

“This is an important balance we’re trying to hit,” Ketchum said. “The securities industry really differentiates itself in the amount of transparency it provides to prior issues that customers should consider in retaining a broker.

Jon Henschen of the broker-dealer recruiting firm Henschen & Associates says that it’s already “very difficult” for brokers to get “anything taken off” their BrokerCheck profiles — including frivolous claims.

“We encounter financial advisors with customer complaints where the complaint was ‘denied’ or there was ‘no action taken,’ yet these nonevent marks stay on their record and may even be looked at as showing a pattern (yes, a pattern of incidents) or could be included in requirements for heightened supervision,” Henschen says.

“In the real world, such marks where no guilt was found, should be able to be taken off a rep’s record — period!”