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FINRA Plans Major Changes to Expungement Rules

Posted in Securities Law

FINRA recently issued Notice to Members 17-42, which proposes sweeping changes to the process by which a securities broker may seek to expunge reference to a customer complaint from his or her public record.  The comment period for the proposed rule amendments ended on Feb. 5, 2018.  The proposed changes will now to go the SEC for review and approval.  The proposal, if approved, would result in a major overhaul of the expungement process, and, as FINRA acknowledges, will likely increase the cost and the difficulty for brokers making expungement requests. Industry participants may wish to comment to the SEC before the proposal is approved.

Key provisions of the proposed rule amendments include:

  • Brokers making a request for expungement must pay a minimum filing fee of $1,450;
  • Requests for expungement must be filed within one year of the closing of a customer arbitration case, or from the closing of a customer complaint (if no arbitration case was filed);
  • Requests for expungement relief must be filed not against the customer who initiated the complaint (as in current practice), but against the firm which employed the broker at the time the complaint was made, and firms will be assessed a member surcharge and a processing fee (thus increasing the costs for both brokers and firms when expungement relief is sought);
  • Unless a request for expungement relief is decided in an existing arbitration case, all such requests must be heard by a panel of special arbitrators who must (1) be qualified as public chairpersons, (2) have completed enhanced expungement training; (3) be admitted to practice law in at least one jurisdiction; and (4) have at least five years’ experience in litigation, federal or state securities regulation, administrative law, service as a securities regulator, or service as a judge.  This is true even if a broker makes a proper request for expungement relief during the course of an arbitration, litigates the case before a properly-constituted panel for an extended period of time and then settles the matter on the eve of the arbitration hearing; in such instances the broker will be required to file an entirely separate action, subject to an entirely different set of rules.
  • Brokers must appear at an expungement hearing in person or by videoconference, and such hearings may no longer be conducted telephonically.
  • Decisions of the arbitration panel on requests for expungement must be unanimous.

For a more detailed analysis of the proposed rule amendments, please see the GT Alert, “FINRA Plans Major Changes to Rules Governing the Expungement of Customer Complaint Information.”

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