FINRA Issues Reg Notice Setting September Effective Date for New Minimum Expungement Fees
Posted on Categories Broker-Dealer, Expungement, FINRA Code of Arbitration, RulemakingTags , , ,

By George H. Friedman, SAA Editor-in-Chief

After SEC approval in late May, FINRA has published Regulatory Notice 20-25 establishing a September 14 effective date for its new fee regime specifically for expungement requests involving customer complaints.

We analyzed in SAA 2020-20 (May 27) the rather long history of this proposal. In brief, after years of accommodating brokers’ expungement requests and fitting that subsidiary, quasi-regulatory relief, into its existing filing fee structure, FINRA proposed a new fee regime specifically for expungement requests. We offer a recap below.

Activity in 2020

The Authority filed with the SEC on February 7, SR-FINRA-2020-005, the purpose of which was to establish minimum fees for requesting expungements. It proposed to amend both Codes to require separate fees for expungement requests arising organically within customer arbitration proceedings and impose a new fee set applicable to “straight-in” expungement proceedings. One key objective was to eliminate the “$1 Trick”a loophole that developed with the surge in expungement requests over the past several years. As reported in SAA 2020-08 (Feb. 26), the SEC on February 20 Noticed the proposal (Release No. 34-88251), and published it in the Federal Register on February 26 (Vol. 85, No. 38, Page 11165). As reported in SAA 2020-12 (Mar. 25), the comment period closed March 18, resulting in seven letters that were mostly supportive (with some suggesting other improvements). FINRA’s Assistant General Counsel Mignon McLemore on May 18 responded to comments in a 13-page letter. Just eight days later, the SEC on May 26 approved the rule change proposal (Release No. 34-88945).

RN 20-25 Sets Effective Date

The Authority on July 20 issued Regulatory Notice 20-25, FINRA Amends Arbitration Codes to Apply Minimum Fees to Requests for Expungement of Customer Dispute Information, effective for cases filed on or after September 14. In a nutshell: “FINRA has amended its Codes of Arbitration Procedure for Customer and Industry Disputes (Codes) to apply minimum fees to requests for expungement of customer dispute information, whether the request is made as part of the customer arbitration or the associated person files an expungement request in a separate arbitration (straight-in request). The amendments also apply a minimum process fee and member surcharge to straight-in requests, as well as a minimum hearing session fee to expungement-only hearings” (footnote omitted).

Changes Apply to Customer Complaints, Not U-5 Reformation

In our comments analysis in SAA 2020-12 (Mar. 25), we noted that SAC’s Founder and President Richard Ryder suggested that FINRA clarify whether the changes applied to: “requests for CRD corrections from brokers whose Form U5s contained allegations by their former employers that had no relation to conduct involving customers, but were alleged to be ‘defamatory in nature.’” Mr. Ryder asked: “Does the Rule change proposal see these reformation matters as different from expungement Awards or are they intended to be treated the same as expungement cases under the new expungement regime that FINRA is erecting?” FINRA’s May 18 response to comments stated: “the Proposal applies only to requests to expunge customer dispute information,” and the Reg Notice bears this out.

(ed: *Our (correct) hunch was a “cases filed” effectiveness. **We expect there will be a flurry of under-the-wire expungement requests ahead of the effective date. Unfortunately, we won’t be able to verify that, because FINRA-DRS does not break out expungement claims in its (otherwise) comprehensive monthly statistical reports.) (SAC Ref. No. 2020-27-01)

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