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FINRA Withdraws Rule Creating Expungement Arbitrator Roster

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What You Need to Know

  • FINRA temporarily withdrew from SEC consideration the special roster rule in order to consider revising it.
  • FINRA also released Friday a new page on its website devoted to expungement.
  • FINRA intends to release data, statistics and a discussion paper that analyzes expungement.

The Financial Industry Regulatory Authority said Friday that it is has withdrawn from the Securities and Exchange Commission its rule filing establishing a special roster of arbitrators for expungement requests so that it can mull revising the rule.

“Following consultations with the SEC staff, we temporarily withdrew from SEC consideration our rule filing establishing specialized arbitration panels for expungement requests so that we can further consider whether modifications to the filing are appropriate,” FINRA said in a statement.

In its Friday statement, FINRA said that the broker-dealer self-regulator “remains committed to working with the SEC and other stakeholders who share a common interest in revising the process for reviewing the information on a broker’s record in the Central Record Depository. Protecting the integrity of the information in the CRD system and BrokerCheck is critical to our mission of investor protection. FINRA is committed to limiting the expungement process so that it operates as intended­ — as an extraordinary remedy, only appropriate in limited circumstances when the CRD information is clearly inaccurate.”

FINRA’s withdrawal of the rule comes a week after the Public Investors Advocate Bar Association maintained that FINRA’s new plan to create a roster of arbitrators with enhanced training and experience to decide whether to expunge customer complaints will not remedy the problems that exist with brokers gaming FINRA’s BrokerCheck.

The SEC was set to approve — or not — FINRA’s new special arbitrator rule by May 28.

PIABA released a report last week stating that brokers are still gaming FINRA’s BrokerCheck through a new tactic — “straight-in expungement,” in which a broker files an arbitration case against their current or former brokerage firm requesting the expungement of a customer complaint.

FINRA also released Friday a new page on its website devoted to expungement.

In redesigning its expungement process, FINRA said Friday in its statement that the redesign “involves multi-stakeholder solutions requiring more fundamental changes to the expungement process.”

FINRA intends to release data, statistics and a discussion paper that analyzes expungement of broker information, before convening discussion groups regarding this information, FINRA said.

FINRA also looks forward “to including stakeholders with insight on the expungement process for investment advisers and other financial intermediaries, and we welcome any information they can provide to more fully inform a holistic view of the issues around expungement throughout the financial services industry.”