Customer Dispute Expungement Just Got Trickier
On April 12, the U.S. Securities and Exchange Commission (SEC) granted approval to a proposition put forth by the Financial Industry Regulatory Authority (FINRA). The proposal aims to enhance the process of preventing securities brokers from expunging customer disputes from their publicly accessible records, introducing stricter regulations in this regard.
The approved FINRA rule brings about changes to the practice of “straight-in expungement,” a method that FINRA acknowledges poses inherent challenges due to its higher success rate compared to other types of expungement appeals. To address this, the rule establishes a dedicated panel of arbitrators tasked specifically with handling straight-in expungement requests.
What is a straight-in expungement?
According to FINRA, in a “straight-in expungement,” a broker initiates an arbitration case against their current or former brokerage firm to seek the removal of a client complaint from their records. Under the current practice, the client and state regulators are unaware of such requests.
The newly approved rule mandates that both state regulators and clients should be informed when an expungement request is made.
Here are the major changes to this type of expungement:
- The new requirement mandates unanimous decisions from three-person arbitration panels to grant expungement awards.
- The revised policy includes provisions to inform customers about the schedule of pre-hearing conferences and the expungement hearing, specifying the time, date, and location. Moreover, it ensures that customers have the right to be notified of these hearings and allows them the option to attend or be represented during such proceedings.
- The updated regulations now demand expungement awards to provide comprehensive explanations of the arbitrators’ reasoning. Additionally, specific time limits have been imposed, requiring brokers to promptly file “straight-in” expungement requests within a specified timeframe.
- State regulators must also be informed of the request within 15 days of filing. They can then participate in the hearings as non-party participants.
Will these new regulations affect brokers?
FINRA has consistently made expungement of customer complaints against brokers more difficult to achieve. Their tightening of regulations has caused the expungement process to be more costly and burdensome. The probability that this new change will cause brokers to find the expungement process more challenging is high. This is not good news for brokers who have potentially career-damaging complaints on their BrokerCheck portal.
Why this change matters for BrokerCheck:
BrokerCheck offers a comprehensive overview of brokers’ licensing credentials, encompassing their completed exams, employment history in the securities industry, and disclosures related to criminal, civil, regulatory, and customer complaints. BrokerCheck mandates the disclosure of customer complaints, irrespective of their merit, ensuring transparency in the reported information.
How can you expunge a customer complaint with FINRA?
Even though the SEC has reviewed the request and granted approval, FINRA has yet to confirm when these will go into effect. Here’s what brokers need to know: FINRA will continue to review its expungement process and impose stricter and more challenging requirements for expungement. Brokers should take prompt action to avoid missing the chance to expunge older customer complaints that would otherwise meet the necessary criteria, as the opportunity may be lost indefinitely. If you’re unsure if your case can go through FINRA’s arbitration, find out here.
We can help you expunge your customer disputes. A broker’s reputation is the backbone of their career. Don’t let a meritless allegation bring down your future. Financial advisors who value their standing should seek guidance from seasoned and experienced counsel. Give us a call today.
