FINRA Adopts Stricter Expungement Rules
Requests for "straight-in" expungements will now have to be heard by a special roster of arbitrators.
The Financial Industry Regulatory Authority has adopted rule amendments approved by the Securities and Exchange Commission in April that make it tougher for brokers to clear client disputes from their records.
FINRA’s Regulatory Notice 23-12 on the adopted changes notes that the new rules kick in on Oct. 16.
Besides requiring that there be a ”unanimous agreement” of the arbitration panel to issue an award containing expungement relief, the bulk of the changes outlined in FINRA’s Reg Notice pertain to the handling of “straight-in expungement” requests.
The FINRA rule modifies a straight-in expungement, a tactic FINRA says presents inherent difficulties since these requests are granted at a higher rate than other types of expungement petitions. The newly approved rule sets up a special roster of arbitrators to hear straight-in expungement requests.
FINRA has noted that with a straight-in expungement, the broker files an arbitration case against their current or former brokerage firm requesting the expungement of a client complaint. However, the client is not made aware of the request, nor are state regulators.
Under the new rule, both state regulators and clients would be informed of an expungement request.
The regulator adopted other changes involving straight-in expungements, including:
- requiring that a straight-in request be decided by a three-person panel that is randomly selected from a roster of experienced public arbitrators with enhanced expungement training;
- prohibiting parties to a straight-in request from agreeing to fewer than three arbitrators to consider their expungement requests, striking any of the selected arbitrators, stipulating to an arbitrator’s removal, or stipulating to the use of pre-selected arbitrators;
- providing notifications to state securities regulators of all requests to expunge customer dispute information and a mechanism for state securities regulators to attend and participate in expungement hearings in straight-in requests;
- imposing strict time limits on the filing of straight-in requests.
Pictured: Lobby at Brookfield Place in New York. Photo: FINRA