The Securities and Exchange Commission approved updated rules to FINRA’s expungement process. The updated rules make it more difficult for registered representatives to expunge customer complaints from their records. Importantly, this rule change does not impact expunging U5 terminations.
Previously, under FINRA Rule 2080, an arbitration panel would only expunge customer complaints if the associated person (AP) could prove one of the following elements:
- The claims or allegations are erroneous or factually impossible
- The claimant was not involved with the alleged violation, forgery, theft or misappropriation of funds.
- The claims or allegations are false.
Key highlights of the new expungement rules, which went into effect on October 16, 2023, include:
- An AP must submit an expungement request within two years of the close of customer litigation or arbitration, or within three years after the customer complaint was initially reported on the Central Registration Depository (CRD).
- APs must appear in person or via video conference to the expungement hearing; telephone appearances are prohibited.
- State securities regulators must receive notice of expungement requests and allowing them to attend and participate in straight-in requests.
- Codifying and updating the best practices in FINRA’s Notice to Arbitrators and Parties on Expanded Expungement Guidance.
- A straight-in request must be decided by a randomly selected three-person panel consisting of experienced arbitrators who have enhanced expungement training.
- Requiring unanimous agreement of the Panel to issue an Award containing expungement relief.
These results will make it more difficult for securities professionals to get customer complaints expunged from their record. As such, it is critical to retain an experienced securities law firm to assist with seeking expungement of customer complaints.
At Hyman Cotter PC, our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. We have decades of experience representing clients with respect to examinations, investigations and enforcement proceedings initiated by the SEC, FINRA, state securities regulatory agencies and other self-regulatory organizations. If your firm is facing an investigation from a regulatory agency, please contact Hyman Cotter PC at 312-291-4600 or through our online contact form.
