erasiNG the Past wiLL Be harder iN the future
Securities Section
Chairs: Eric Feld - Wiand Guerra King P.A. and Josef Rosen - GrayRobinson, PA
fiNra noted its “long-held
position that the
expungement of customer
dispute information is an
T
he Financial Industry
Regulatory Authority
(FINRA) recently
approved changes
to the expungement process for
customer complaints. Likely to
the chagrin of financial advisors
but to the delight of consumer
protection advocates, the changes,
which have been submitted to the
SEC for final approval, all appear
to make obtaining an expungement
more difficult.
In December 2017, FINRA
issued Regulatory Notice 17-42,
requesting public comment on
potential changes predominantly
impacting FINRA Rules 12100,
12805, 13805 and 13806. While
primarily taking aim at expunge -
ment requests “where the
underlying customer-initiated
arbitration is not resolved on the
merits or the associated person
files a separate claim requesting
expungement of customer dispute
information,” the changes apply
to all requests for expungement.
In the Notice, FINRA noted
its “long-held position that the
expungement of customer dispute
information is an extraordinary
measure…,” and explained its
rationale for the changes based
on criticisms of the expungement
process, especially where the
underlying dispute between the
customer and respondent had been
settled without a hearing of the
66
extraordinary measure.”
merits. In particular, FINRA stated:
“In these instances, critics argue
that the panel from the underlying
customer case has not heard the full
merits of that case and, therefore,
may not have any special insights
in determining whether to grant
a request for expungement of
customer dispute information under
Rule 2080. Further, claimants and
their counsel have little incentive
to participate in an expungement
hearing after the underlying
customer case settles and typically
do not participate in such hearings.
Thus, during these expungement
hearings, the panel may receive
information that is one-sided, which
may favor the associated person
requesting expungement.”
The amendments, which apply to
various scenarios involving expunge -
ment, are primarily as follows:
All Requests for Expungement
of Customer Dispute
Information
• The FINRA Code would be
amended so that in all requests
for expungement of customer
dispute information: (1) the
associated person who is
seeking to have his or her CRD
record expunged must appear
at the expungement hearing;
and (2) to grant expungement,
a three-person panel of
arbitrators must unanimously
agree that expungement is
appropriate under Rule 2080
and find that the customer
dispute information has no
investor protection or
regulatory value.
Expungement Requests During
the Underlying Customer Case
• The associated person, if
named in an action, only has
one opportunity to request
expungement;
• Remove the option to file an
expungement request outside
of the underlying customer
case against a customer;
• Create a one-year limitation
period for requests for
expungement that were not
decided during the underlying
customer case.
Expungement Arbitrator Roster
• Establish a roster of public
chairpersons with additional
qualifications to decide
expungement requests filed
against a firm under the
Industry Code.
Based on the proposed changes,
Firms and their Associated Persons
will likely face a higher burden
when seeking expungement, and
they should be prepared to comply
with the new procedural rules. n
Authors: Eric Feld - Wiand Guerra
King & Josef Rosen - GrayRobinson
JAN - FEB 2020
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HCBA LAWYER