Recent Changes and Trends in FINRA Expungement: Insights for Financial Advisors
Author: |October 17, 2023
Navigating the FINRA Expungement Process
Recent Changes and Trends in FINRA Expungement: Insights for Financial Advisors
Navigating the FINRA Expungement Process
The FINRA expungement process allows brokers, financial advisors, and other registered financial professionals to clear their names in response to unfounded or inaccurate allegations. Because the process can be challenging to navigate, particularly in light of recent amendments to FINRA’s expungement rules, it is advisable to work with an experienced FINRA expungement attorney.
When customers file complaints with FINRA, they are entered into its Central Registration Depository (CRD), which is the central licensing and registration system used by U.S. securities regulators and financial firms. Information from the CRD system is made available to the public through FINRA’s BrokerCheck website.
Customer dispute information, which may include customer complaints, arbitration claims, arbitration awards, and court judgments, is disclosed regardless of whether it has been determined that the broker has committed any wrongdoing. Accordingly, even if FINRA arbitrators conclude that a complaint lacks merit, it remains in FINRA BrokerCheck unless the broker successfully seeks expungement.
Types of Expungement Requests
According to FINRA, expungement is an “extraordinary remedy” to be used only in limited cases. It requires a court order directing expungement or an order confirming an arbitration award containing expungement before it will expunge customer dispute information from the CRD system.
Financial professionals may make an arbitration request during an ongoing customer arbitration or as a “straight-in request.” A straight-in request expungement is a separate arbitration claim devoted exclusively to expungement and is often filed after the settlement of a customer-initiated arbitration or where a customer complaint does not result in a customer-initiated arbitration.
Grounds for Expunging Customer Complaints
FINRA Rules 12805 and 13805 outline the narrow circumstances in which the expungement of customer dispute information from the CRD system is appropriate. To obtain an award containing expungement relief through the FINRA Dispute Resolution Services (DRS) arbitration forum, the arbitrator(s) must unanimously find that the party requesting expungement has established one of the following:
- The claim, allegation, or information is factually impossible or erroneous;
- The associated person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds; or
- The claim, allegation, or information is false.
Recent Changes to FINRA’s Expungement Rules
Effective October 16, 2023, FINRA amended the Codes of Arbitration Procedure (Codes) to modify the process for requesting expungement of customer dispute information in the DRS arbitration forum. Several of the changes make the expungement of customer disputes more challenging. These amendments include the following:
- Arbitration panels must unanimously agree that one or more of the three narrow grounds for expungement enumerated in FINRA Rules 12805 and 13805 has been established to issue an award containing expungement relief.
- Arbitrators are expressly authorized to request from the party requesting expungement, and from the member firm at which the person was associated at the time the customer dispute arose, any documentary, testimonial, or other evidence that it deems relevant to the expungement request.
- Arbitration panels must provide greater detail in their awards explaining the rationale for granting expungement. Panels must specifically provide a written explanation of the reason(s) for its finding that one or more of the grounds for expungement apply to the facts of the request, and identify any specific documentary, testimonial, or other evidence on which the panel relied in awarding expungement relief.
- Parties requesting expungement must appear in person or by video conference at the expungement hearing.
- Notification to state securities regulators is required for expungement requests filed in the DRS arbitration forum.
- To facilitate customer attendance and participation, customers are permitted to participate by telephone, in person, or by video conference.
Key Amendments to ‘Straight-In’ Request Procedures by FINRA
The FINRA amendments also make several changes to how “straight in” requests are handled. This includes the imposition of strict deadlines for filing requests. Financial professionals seeking expungement must now file their request within two years of the close of the customer litigation or arbitration linked to the customer dispute. Alternatively, they can do so within three years after the date the customer complaint was reported on the CRD system.
FINRA will also randomly select a panel of arbitrators to decide the expungement request. Parties are not permitted to agree to fewer than three arbitrators. Parties are also not permitted to strike any arbitrators selected by FINRA’s list selection algorithm or stipulate their removal.
The amended rules for straight-in requests introduce a mechanism for state securities regulators to attend and participate in expungement hearings. They can do so either in person or through video conference. Even if they are not a party to the hearing.
Why You Need an Experienced FINRA Expungement Attorney
Successfully navigating the FINRA expungement process can make or break your career. With such high stakes, you need an experienced legal team in your corner. At Scarinci Hollenbeck, our attorneys have extensive experience handling expungement requests. We work tirelessly to protect your legal interests and your reputation. If you are facing a false or inaccurate customer complaint, we encourage you to contact one of our FINRA defense attorneys today.
Recent Changes and Trends in FINRA Expungement: Insights for Financial Advisors
Author:
The FINRA expungement process allows brokers, financial advisors, and other registered financial professionals to clear their names in response to unfounded or inaccurate allegations. Because the process can be challenging to navigate, particularly in light of recent amendments to FINRA’s expungement rules, it is advisable to work with an experienced FINRA expungement attorney.
When customers file complaints with FINRA, they are entered into its Central Registration Depository (CRD), which is the central licensing and registration system used by U.S. securities regulators and financial firms. Information from the CRD system is made available to the public through FINRA’s BrokerCheck website.
Customer dispute information, which may include customer complaints, arbitration claims, arbitration awards, and court judgments, is disclosed regardless of whether it has been determined that the broker has committed any wrongdoing. Accordingly, even if FINRA arbitrators conclude that a complaint lacks merit, it remains in FINRA BrokerCheck unless the broker successfully seeks expungement.
Types of Expungement Requests
According to FINRA, expungement is an “extraordinary remedy” to be used only in limited cases. It requires a court order directing expungement or an order confirming an arbitration award containing expungement before it will expunge customer dispute information from the CRD system.
Financial professionals may make an arbitration request during an ongoing customer arbitration or as a “straight-in request.” A straight-in request expungement is a separate arbitration claim devoted exclusively to expungement and is often filed after the settlement of a customer-initiated arbitration or where a customer complaint does not result in a customer-initiated arbitration.
Grounds for Expunging Customer Complaints
FINRA Rules 12805 and 13805 outline the narrow circumstances in which the expungement of customer dispute information from the CRD system is appropriate. To obtain an award containing expungement relief through the FINRA Dispute Resolution Services (DRS) arbitration forum, the arbitrator(s) must unanimously find that the party requesting expungement has established one of the following:
- The claim, allegation, or information is factually impossible or erroneous;
- The associated person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds; or
- The claim, allegation, or information is false.
Recent Changes to FINRA’s Expungement Rules
Effective October 16, 2023, FINRA amended the Codes of Arbitration Procedure (Codes) to modify the process for requesting expungement of customer dispute information in the DRS arbitration forum. Several of the changes make the expungement of customer disputes more challenging. These amendments include the following:
- Arbitration panels must unanimously agree that one or more of the three narrow grounds for expungement enumerated in FINRA Rules 12805 and 13805 has been established to issue an award containing expungement relief.
- Arbitrators are expressly authorized to request from the party requesting expungement, and from the member firm at which the person was associated at the time the customer dispute arose, any documentary, testimonial, or other evidence that it deems relevant to the expungement request.
- Arbitration panels must provide greater detail in their awards explaining the rationale for granting expungement. Panels must specifically provide a written explanation of the reason(s) for its finding that one or more of the grounds for expungement apply to the facts of the request, and identify any specific documentary, testimonial, or other evidence on which the panel relied in awarding expungement relief.
- Parties requesting expungement must appear in person or by video conference at the expungement hearing.
- Notification to state securities regulators is required for expungement requests filed in the DRS arbitration forum.
- To facilitate customer attendance and participation, customers are permitted to participate by telephone, in person, or by video conference.
Key Amendments to ‘Straight-In’ Request Procedures by FINRA
The FINRA amendments also make several changes to how “straight in” requests are handled. This includes the imposition of strict deadlines for filing requests. Financial professionals seeking expungement must now file their request within two years of the close of the customer litigation or arbitration linked to the customer dispute. Alternatively, they can do so within three years after the date the customer complaint was reported on the CRD system.
FINRA will also randomly select a panel of arbitrators to decide the expungement request. Parties are not permitted to agree to fewer than three arbitrators. Parties are also not permitted to strike any arbitrators selected by FINRA’s list selection algorithm or stipulate their removal.
The amended rules for straight-in requests introduce a mechanism for state securities regulators to attend and participate in expungement hearings. They can do so either in person or through video conference. Even if they are not a party to the hearing.
Why You Need an Experienced FINRA Expungement Attorney
Successfully navigating the FINRA expungement process can make or break your career. With such high stakes, you need an experienced legal team in your corner. At Scarinci Hollenbeck, our attorneys have extensive experience handling expungement requests. We work tirelessly to protect your legal interests and your reputation. If you are facing a false or inaccurate customer complaint, we encourage you to contact one of our FINRA defense attorneys today.
