RIA Compliance Blog
In September 2017, the Financial Industry Regulatory Authority updated a previously published Notice related to FINRA Rules 12805 and 13805, which “establish procedures that arbitrators must follow before recommending expungement of customer dispute information related to arbitration cases from a broker’s Central Registration Depository (CRD®) record.” When details are expunged from the CRD system, those details are permanently deleted and cannot be accessed by members of the general public, regulators, or potential broker-dealer employers. As a result, FINRA regards expungement as an extreme remedy that should only be exercised in circumstances in which one of the three “narrow grounds specified in Rule 2080” are met. These three grounds are a finding that the claim, allegation or information is factually unfeasible or obviously erroneous, a finding that a registered person did not participate in the alleged investment-related misconduct, or a finding that the claim, allegation, or information is untrue.
The updates to the Notice added instructions regarding expungement requests before an underlying arbitration case has concluded. According to FINRA, a broker is not permitted to file an expungement request pertaining to customer dispute information until after the underlying customer arbitration involving the information has concluded. Likewise, a broker is forbidden from filing an expungement request in a distinct, expungement-only case before an underlying customer arbitration ends. The updates to the Notice also provide that FINRA allows the Director of the Office of Dispute Resolutions to deny use of the FINRA arbitration forum if the Director concludes that the subject matter of the dispute is unsuitable, or that consenting to hear the matter would create a risk to the health and safety of the parties and arbitrators. The updates conclude by saying that the Director has decided to not allow requests for expungement to be heard before the underlying customer arbitrations conclude in order to keep results consistent and to ensure efficiency. Continue reading ›