The SEC approved a new FINRA rule (FINRA Rule 2081) prohibiting member firms and associated persons from conditioning the settlement of a customer dispute on expungment relief from the Central Registration Depository (“CRD”).  The CRD system is an online registration and licensing database maintained by FINRA, pursuant to FINRA rules and an agreement with the North American Securities Administrators Association (NASAA).  Much of the information on a member firm or registered representative’s CRD, including administrative or disciplinary information, such as a customer complaint or arbitration claim, is made available to the public through FINRA’s BrokerCheck.

The new FINRA rule will eliminate the ability to bargain for expungment of the firm’s or registered representative’s CRD in exchange for a customer’s agreement not to oppose a request to expunge information relating to the customer dispute.  In approving this stricter rule, the SEC reasoned that regulators and the investing public are disadvantaged when factual information about customer disputes is removed from the CRD.  The new FINRA rule is the latest part of a continuing effort by FINRA to tighten up the standard for expungement, and follows expanded guidance on expungement that FINRA issued in October 2013.

 

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