The Financial Industry Regulatory Authority is proposing additional steps to revamp the expungement process available to registered financial professionals, according to Financial Advisor.
FINRA addressed the topic in a recent discussion paper on the expungement of customer dispute information. The authority cited one concern about RFPs making repeated attempts to seek expungement of complaints after being initially denied expungement relief by arbitrators. FINRA said it is also concerned about so-called “arbitrator shopping” in which representatives believe that another panel that has not heard the merits of the customer’s claim may be more likely to decide expungement in their favor. Some representatives withdraw an original expungement request after arbitrators were made aware of evidence that could result in the denial of the request.
To deal with this issue, the authority renewed its Special Roster Proposal, which would create a panel randomly selected from a roster of experienced public arbitrators who would hear requests by financial professionals to clear their records of complaints. The proposal would also impose time limits within which RFPs can request expungement. FINRA said this would prevent them from requesting expungement many years after customer disputes were reported to the Central Registration Depository (CRD) system.
This proposed rule was initially filed with the SEC in September 2020, but FINRA withdrew the plan after industry organizations called for more sweeping reforms. A review by the Public Investors Advocate Bar Association, a trade group for investor attorneys, found that attempts by brokers to use arbitration to expunge their records had risen over 1,000 percent over the past three years, and that these requests are approved 90 percent of the time by arbitration panels. FINRA said it is seeking to reform the expungement process “so that it operates as intended — as a remedy that is appropriate only in limited circumstances in accordance with the narrow standards in FINRA rules.”
FINRA makes information about financial professionals in the CRD system publicly available through BrokerCheck, a free tool to help investors make informed choices about the RFPs and broker-dealer firms. Registered representatives have no control over these disclosures, even when they are false, defamatory or erroneous.
Lewitas Hyman has considerable experience with FINRA’s procedures for expunging false, defamatory and erroneous disclosures from a registered representative’s record. If you have any concerns about problematic disclosures on your CRD record or those that are viewable on FINRA’s BrokerCheck portal, contact Lewitas Hyman at (888) 655 6002 or through our online contact form for a free consultation.