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FINRA Moves Ahead on Expungement Changes

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The Financial Industry Regulatory Authority has sent its changes to its expungement process to the Securities and Exchange Commission for approval.

FINRA’s plan would, among other changes, create a roster of arbitrators with enhanced training and experience to decide whether to expunge customer complaints. The arbitrator panel would be selected in certain instances to decide an associated person’s request to expunge customer dispute information.

FINRA’s board approved the expungement changes in October 2019.

The rule would also establish procedural requirements that arbitrators and parties must follow for expungement hearings, and set up requirements for notifying state securities regulators and customers of expungement requests.

Sam Edwards, president of the Public Investors Advocate Bar Association (PIABA),a group for lawyers that represent investors in disputes with the securities industry, told ThinkAdvisor on Friday in an email that FINRA’s proposed expungement rule changes “help to fill in some of the holes in the expungement process” that a PIABA Foundation report from a year ago pointed out.

As noted in that report, Edwards said, “brokers and a handful of law firms have been manipulating the process in a way that completely undermined the expungement system, resulting in expungement being commonplace, instead of the extraordinary remedy expungement is supposed to be.”

While the changes to FINRA’s arbitration rules “should help some of those known problems, ultimately, the expungement process will never be fixed while it is a part of the FINRA arbitration system,” Edwards added. “That system was not built to handle expungements, but rather disputes between parties. Expungement is really a regulatory issue and should be handled as such, instead of trying to force it into the arbitration process.”

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