FINRA Takes Steps to Amend Records Expungement Process

With the help of the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority (“FINRA”) recently announced that it is preparing to revise its rules for the records expungement process. FINRA hopes that its new rules will increase the level of scrutiny on financial advisors and brokers seeking to expunge customer complaints from their regulatory records. If you are a financial advisor or broker and have questions about the potential effects of FINRA’s proposed changes, please review the information below, and contact a financial advisor representation attorney for assistance. 

The CRD  

FINRA’s Central Registration Depository (“CRD”) is a database that stores information about financial advisers and brokers, including their education, employment history, and licensing certifications. Also stored in the CRD are customer complaints, grievances, arbitrations, and regulatory enforcement actions. It is this latter type of information that is often the focus of broker and financial advisor expungement efforts. 

The Current Situation Of The Records Expungement Process

According to a recent study, there has been a drastic increase in the number of expungement arbitration cases filed since 2015. Specifically, the number of cases increased from 59 in 2015 to 545 in 2018. And in most of these types of cases, there is typically little resistance to a broker’s request for expungement. Specifically, investors who file complaints against brokers and financial advisors only appear in approximately 13 percent of all expungement arbitrations. Investor advocacy groups attribute this lack of opposition to the fact that FINRA doesn’t have a process to alert complaining customers of expungement filings. Thus, investor advocacy groups have called for FINRA to suspend all expungement hearings until procedural safeguards are adopted by rule. Due to the lack of investor participation in arbitration proceedings, investor advocacy groups have accused financial advisors and brokers of gaming, exploiting, and abusing FINRA’s expungement arbitration process and reducing market transparency. 

Proposed Changes To The Records Expungement Process

In response to the above allegations, FINRA recently proposed changes to its expungement process. If approved by the SEC, these changes will:

• Require that expungement requests be submitted within one year of a complaint

• Raise the standard for granting expungement

• Create a roster of specially trained arbitrators to hear expungement cases

Fort Lauderdale Financial Advisor Representation Lawyers  

At Simms Law, P.A., we focus on the representation of financial advisors who’ve been accused of failing to abide by securities laws, rules, and regulations. Our representation of financial advisors covers a wide range of issues, including the expungement of disclosures through FINRA expungement proceedings, compensation issues, raiding-related claims, and matters pertaining to the successful transition from one firm to another. If you are a financial advisor and would like to pursue the customer complaint expungement process, or if you have questions about how FINRA’s proposed rule changes may affect you, please contact us by phone or through one of the contact forms on our website to schedule a free consultation.