FINRA’s New Expungement Rules – Balancing Interests But Adding Roadblocks
Posted on Categories Arbitration Awards, Expungement, Feature Article, FINRA Code of Arbitration, RegulationTags , , ,

By David E. Robbins[1]

Assuming  SEC approval, FINRA’s significant changes to its expungement procedures will be implemented some time this year. The first thing practitioners will see is that there are so many moving parts that getting a customer complaint or arbitration permanently removed from a broker’s record will become much more difficult. While the three grounds for expungement remain the same – (1) the information to be expunged is factually impossible or clearly erroneous; (2) the person was not involved in the sale practice violations; or, (3) the allegations are false – without a firm grasp of the new requirements, the odds of securing a broker’s expungement will drop precipitously. This article explains the new era of expungements.

The five major distinctions between the new procedures and a normal FINRA arbitration are: (1) inapplicability of the six-year arbitrability rule; (2) elimination of party selection of arbitrators for certain cases; (3) requirement of a unanimous decision; (4) possibility of forfeiting the right to expungement; and, (5) significant participation by a state securities regulator at certain expungement hearings.

FINRA’s rule filings with the SEC, its Guidance, Discussion Paper and Frequently Asked Questions can be found in the second endnote to this article and are the source of what follows:[2] (1) the rules at issue; (2) the only expungement grounds; (3) balancing four competing interests; (4) Special Arbitrator Roster for certain expungement cases; (5) getting the request before the arbitrators; (6) third-party participation (customers and state regulators); and, (7) the Award and thereafter. There are also new rules for simplified customer arbitrations (involving $50,000 or less).

  1. The FINRA Rules
  • Customer Code – Rule 12805: Requirements arbitrators must meet to issue an expungement Award containing expungement of customer dispute information.
  • Industry Code – Rule 13805: “Straight-In Request” requirements.
  • Customer Code – Rule 12800(d) - Expungement requests in “simplified customer arbitrations.”
  • FINRA Rule 2080:– Obtaining an Order of Expungement of customer dispute information from the Central Registration Depository (“CRD”).[3]
  1. The Only Rule 2080 Expungement Grounds of Customer Dispute Information

How does FINRA explain the three grounds to the public and to its arbitrators? In its Website Frequently Asked Questions About the Rule 2080 Expungement Grounds,[4] examples are provided.[5] FINRA Dispute Resolution Services graciously provided your author with a copy of the October 2016 Expungement Training printout and a link to the online training module for arbitrators.

  1. The claim, allegation, or information is factually impossible or clearly erroneous.The training states: “The ‘factually impossible or clearly erroneous’ standard has clear meaning to regulators and public investors. For example, if the evidence shows that the broker was not even employed by the securities firm during the relevant time period, the arbitrators could find that he or she was erroneously named in the arbitration claim, dismiss the claim against the individual and recommend expungement of any mention of the claim from the CRD record under this standard.” And the online training module states: “An example would be if a broker was not employed at the time of issue and was therefore erroneously named.”
  1. The registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. The training provides: “The above standard would require an affirmative arbitral or judicial finding that the broker was not involved in any of the activities listed above. This list of activities is taken from Question 14 of Form U4, which specifies the types of customer complaints that registered persons must report. Therefore, if arbitrators make he required finding, no logical basis would exist for keeping the reported claim on an individual’s CRD record.” And the online module states: “These are Form U-4 Reportable Complaints – investment related sales practice violation, forgery, theft, misappropriate or conversion of funds.”[6]
  1. The claim, allegation, or information is false. Here, arbitrators will assess the evidence in the case, make an affirmative finding that the claim, allegation, or information is false, and , if warranted, order expungement relief. This is the ground customer attorneys should have the greatest trouble with since it is diametrically opposed to the allegations of wrongdoing in Statements of Claim. The training states: “This basis for expungement is premised on a finding that the claim, allegation or information given was false. Arbitrators should make such a finding only after considering the merits of the allegations against the broker or securities firm. For example, if the customer alleged that the broker made unauthorized trades and the broker provided evidence contrary to this claim, such as a document signed by the customer directing the trades, arbitrators could find that the claim or allegation was false.” The online module states: “Consider the merits of the allegations and evidence contracting the claim.”
  1. Balancing Competing Interests

In its SEC filing and in the Federal Register Notice (see endnote 2), FINRA states that the expungement rules seek to balance the interests of: (1) securities regulators in having accurate and relevant information to fulfill their regulatory responsibilities, what FINRA refers to throughout its filing as “maintaining the integrity of information in the CRD system;” (2) the interests of investors in having access to accurate and meaningful information about associated persons with whom they may entrust their money; (3) the interests of broker-dealers in having accurate information for use in making informed employment decisions; and (4) the interests of the brokerage community in having a fair process to address inaccurate customer dispute information.

How did it all begin? The process of seeking expungement through FINRA began when brokers who were not found liable in a customer arbitration asked that arbitration panel to expunge the underlying customer dispute from the CRD system. Separate and apart from such arbitrations, so-called “straight-in requests” were found by FINRA to “present inherent difficulties and panels deciding straight-in requests issue awards containing expungement relief more often than panels deciding expungement requests made in customer arbitrations.”

  1. Who Decides Expungement Cases? Special Arbitration Roster For Certain Cases

Simply put, for all “straight-in expungement requests,” FINRA will select three arbitrators from the Special Arbitrator Roster, but the parties will not be able to strike and rank a longer list, as they do for all other FINRA arbitrations. For pending customer arbitrations, the typical customer arbitration panel will decide the expungement request unless the case settles or is withdrawn prior to the issuance of an Award; then three arbitrators from the Special Arbitrator Roster will decide the expungement request  in a new arbitration (except for Simplified Arbitrations).

Why can parties not select arbitrators for straight-in cases? “To minimize the potential for influence in the arbitrator selection process by the associated person and member firm, whose interests may be aligned, and to help ensure the development of a more complete factual record,” wrote FINRA in its SEC filing, “the proposed rule change would require NLSS to select randomly the three public chairpersons from the Special Arbitrator Roster. FINRA believes that the higher standards that the arbitrators must meet to serve on the Special Arbitrator Roster should mitigate the impact of the absence of party input on the selection of arbitrators. In addition, associated persons and member firms would still be permitted to challenge any arbitrator for cause.”

Who will be on the Special Arbitrator Roster? Public arbitrators who are eligible for the chairperson roster, who have successfully completed enhanced expungement training and have served as an arbitrator through Award on at least four customer arbitrations in which a hearing was held.

What does training consist of? “The public chairpersons must have evidenced successful completion of, and agreement with, enhanced expungement training provided by FINRA, which will be expanded for arbitrators seeking to qualify for the Special Arbitrator Roster,” wrote FINRA in its SEC filing. “This would allow FINRA to further emphasize with the arbitrators on the Special Arbitrator Roster the unique, distinct role they play in determining whether to issue an Award containing expungement relief and that expungement should be issued in limited circumstances and only if the arbitrators unanimously find that the information to be expunged is factually impossible, clearly erroneous or false, or that the associated person was not involved in the alleged misconduct.”

  1. Getting the Expungement Request Before the Arbitrators

In a customer arbitration in which the associated person/registered representative/financial adviser is a named Respondent, the request must be contained either in the Answer (within 45 days upon receiving the Statement of Claim) or by separate pleading (to be submitted no later than 60 days before the first scheduled hearing). Failing to do this will result in forfeiture to request expungement. That’s right – forfeiture.

If the person is not a named Respondent (e.g., broker) and a party (e.g., brokerage firm) wishes to have that panel decide the request, the “unnamed person” must sign a  FINRA Dispute Resolution Services form agreeing to be part of the arbitration, along with the requesting party; such “on-behalf of” request must be filed no later than 60 days before the first scheduled hearing. The “unnamed person” is not required to take part in the arbitration for expungement purposes and may, instead, choose a separate, straight-in case before a Special Arbitrator Roster panel. In this instance,  “unnamed persons” – unlike  “named persons” – would not forfeit their  right to seek expungement.

What must be contained in all expungement requests? (1) the applicable filing fee under the Code; (2) the CRD number of the party requesting expungement; (3) each CRD “occurrence” number that is the subject of the request (and which appears on the CRD, not the BrokerCheck); (4) the case name and docket number associated with the customer dispute information; (5) an explanation whether expungement of the same customer dispute information was previously requested and, if so, how it was decided; and (6) which of the limited grounds for expungement apply and why.

Critical Limitations/Restrictions From Having Straight-In Expungement Requests Heard

  1. Prior Arbitration: A panel held a hearing to consider the merits of the associated person’s request for expungement of the same customer dispute information.
  2. Res Judicata: A court of competent jurisdiction previously denied the associated person’s request to expunge the same customer dispute information.
  3. Pending Action: The customer arbitration, civil litigation or customer complaint associated with the customer dispute information is not closed.
  4. Rule of Repose for Actions: More than two years have elapsed since the customer arbitration or civil litigation associated with the customer dispute information has closed.
  5. Rule of Repose for Complaints: There was no customer arbitration or civil litigation associated with the customer dispute information and more than three years have elapsed since the date the customer complaint was initially reported to the CRD system.
  6. Forfeiture: A named person is prohibited from seeking expungement because he/she did not request it in the customer arbitration pursuant to Rule 12805(a)(1)(A).

An ironic twist: Claimants can bring an arbitration as long as the arbitrators find that the six-year rule of arbitration eligibility has been complied with – as provided in Rules 12206(a) and 12306(a). But not straight-in expungement Claimants; they are bound by either the two-year or three-year rules of repose. What happens if the financial adviser brings a successful straight-in expungement case and wins? Does that prevent the customer from thereafter bringing a case?

No, according to FINRA’s SEC filing: “As a result of this six-year eligibility rule, a customer arbitration may be filed after an associated person has filed and received an Award in connection with a customer complaint associated with the customer arbitration. To avoid unfairly impacting a customer arbitration filed after a panel has issued an Award on a request to expunge a customer complaint associated with the customer arbitration, the proposed rule change would provide that a prior expungement Award shall not be admissible in the customer arbitration.”

  1. Third-Party Participation – A New Invitee at Straight-In Hearings

Customers have always been encouraged to participate in expungement hearings, but few do – especially after they settle. The new rules make it easier for them to play an important role. In addition, for the first time in FINRA arbitration history, a non-party (an “authorized representative of state securities regulators”) may receive all filings and take an active role at certain expungement hearings.

Notification to Customers: The proposed rule would require the Director to notify all customers whose customer arbitrations, civil litigations or customer complaints are a subject of the expungement request, of the time, date and place of any prehearing conferences and the expungement hearing.  Hopefully, the Director will also notify their counsel-of-record.

Notifications to State Securities Regulators: Notification by the Director would help, in FINRA’s opinion, to ensure that they are timely notified of expungement requests.

FINRA states that, at the hearing, arbitrators should allow customers and their representatives to appear, customers to testify (telephonically, in person, or other method), to introduce documents and evidence, to cross-examine the associated person or other witnesses called by the party seeking expungement and make opening and closing statements.

What is the extent of the regulator’s participation? Substantial. According to FINRA’s SEC filing, “The authorized representative will be permitted to: (1) introduce documentary, testimonial or other evidence; (2) cross-examine witnesses; and, (3) present opening and closing arguments if the panel allows any party to present such arguments. The other persons appearing at the expungement hearing could state objections to the authorized representative’s evidence and cross-examine the authorized representative’s witnesses.”

Why is FINRA permitting such participation? “Allowing an authorized representative to attend and participate in straight-in requests may provide meaningful opposition to the expungement request, which might otherwise be unopposed, and thus help create a more complete factual record for the panel to rely upon to decide the expungement request. NASAA and state securities regulators have a shared interest with FINRA in protecting the integrity of the information contained in the CRD system, as it is a crucial tool in their registration and oversight responsibilities.” It also will have a chilling effect on persons seeking expungement.

  1. The Unanimous Award and Thereafter

Even though FINRA Awards are decided by majority vote (Rule 12902(a) and 13904 (a)) and FINRA disciplinary decisions are also so enforceable (see Rule 9268(a)), arbitrators may no longer grant expungement requests by majority vote; expungement Awards must be unanimous. Nor can the granting of the request just cite one or more of the three grounds for expungement; more is required.

Why? According to its SEC filing, “FINRA believes that this change would help protect the integrity of the information in the CRD system and help ensure that the expungement process operates as intended—as a remedy that is appropriate only in limited circumstances in accordance with the narrow standards in FINRA rules.” In addition, “The panel’s explanation must be complete and not solely a recitation of one of the FINRA Rule 2080(b)(1) grounds or language provided in the expungement request. The panel’s explanation should identify any specific documentary, testimonial or other evidence on which the panel relied in awarding expungement relief.”

In its April 2022 Position Paper on Expungement (see endnote 2), FINRA dealt with the expungement process after a favorable Award is issued. “FINRA will not expunge customer dispute information from the CRD system based on an arbitration Award unless that Award is confirmed by a court of competent jurisdiction.”

When such an Award is received by FINRA and before seeking its confirmation in a court of law as a judgement, FINRA should be requested  by the financial adviser to waive participation in the court proceeding. However, notes FINRA, it “has opposed confirmation of arbitration Awards when a panel: (1) included expungement of a customer dispute disclosure related to a prior arbitration in which the Registered Financial Professional (“RFP”) was found liable; (2) issued an Award containing expungement relief but failed to follow the procedures required by FINRA rules and guidance when considering an expungement request; (3) included expungement of information not eligible for expungement pursuant to FINRA Rule 2080; and, (4) included expungement of a customer dispute that was previously denied in another proceeding. These challenges by FINRA are intended to help ensure the integrity and accuracy of the information in the CRD system.”

Expungement Requests During Simplified Customer Arbitration

Customer arbitrations involving $50,000 or less - called simplified arbitrations - are governed by FINRA Rule 12800. The first thing one needs to know is that such customer-Claimants can request that a single arbitrator decide the case one of three ways: (1) without a hearing (referred to as “on the papers”), where the arbitrator decides the case on the pleadings or other materials; (2) in an “Option One” full hearing, in which prehearings and hearings on the merits take place in accordance with the regular provisions of the Code; or, (3) in an “Option Two” special proceeding, whereby the parties present their case in a hearing to the arbitrator in a compressed timeframe, so that the hearings last no longer than one day.

An associated person named as a Respondent in a simplified arbitration could request expungement during the arbitration of the customer but, unlike a non-simplified case, he/she is not required to make the request (i.e., there will be no forfeiture of the right to bring a straight-in arbitration before a Special Arbitrator Roster).

If named associated persons in a simplified case request expungement, they will be required to file the request in an Answer or in a separate pleading requesting expungement (within 30 days after FINRA notifies the parties of the arbitrator’s appointment). The request would be required to include the same information as a request filed in a non-simplified arbitration.

As with “on-behalf-of requests” filed in customer arbitrations under proposed Rule 12805(a)(2), the unnamed person who would benefit from the expungement request must consent to such filing by signing the same FINRA form. And to limit arbitrator shopping, the arbitrator would be required to decide an on-behalf-of request once it is filed by the requesting party.

If expungement is not requested during the simplified arbitration under proposed Rule 12800(d), the associated person would still be able to file a straight-in request under proposed Rule 13805 and have the request decided by a three-person panel randomly selected from the Special Arbitrator Roster.

If a named associated person or party on-behalf-of an unnamed person requests expungement during a simplified arbitration, the arbitrator would be required to decide the expungement request, regardless of how the simplified arbitration closes (e.g., even if the arbitration settles). Going back to the beginning of this section (i.e., the three ways a simplified arbitration can proceed), if the customer chooses not to have a hearing (a paper case) or chooses an Option Two special proceeding, the arbitrator would decide the customer’s dispute first and issue an Award. But after the customer’s dispute is decided, the arbitrator must hold a separate expungement-only hearing to consider and decide the expungement request and issue a separate, subsequent Award.

If the customer in a simplified case chooses to have a full “Option One” hearing on his/her claim and the hearing closes by Award, the arbitrator would be required to consider and decide the expungement request during the customer arbitration and include the decision on the expungement request in the same Award as the decision on the customer arbitration. If, however, the customer arbitration closes other than by Award or by Award without a hearing (settles or is withdrawn), the arbitrator would be required to hold a separate expungement-only hearing to consider and decide the expungement request and issue a separate Award containing the decision on the expungement request. This is a distinction from Special Arbitrator Roster straight-in cases.

Lastly, who are the arbitrators for simplified arbitrations in which expungements are requested? “FINRA does not believe that it is necessary for a panel from the Special Arbitrator Roster to decide an expungement request if a simplified customer arbitration is decided on the papers, in an Option Two special proceeding or if the simplified customer arbitration closes other than by Award or by Award without a hearing.”


In response to constructive criticism from the Public Investors Advocate Bar Association (“PIABA”) and its own corporate soul-searching, FINRA has enhanced and made more restrictive the expungement process to protect the integrity of the far-ranging information on the Central Registration Depository while providing an avenue – filled with roadblocks  – for financial advisers to remove information on their CRD that is factually impossible, clearly erroneous or false or the adviser was not involved in the alleged misconduct.


[1] © 2023 David E. Robbins, of Kaufmann Gildin & Robbins LLP [ ] is a long time member of the board of this publication. He represents investors, brokers and firms and is the author of Securities Arbitration Procedure Manual and the Securities Arbitration Practice Commentary for McKinney’s Consolidated Laws of New York.

[2] Text of Proposed Amendments to Expungement Rules

Federal Register Notice

Amendments to Proposed Amendments

Notice to Approve or Disapprove Proposed Amendments

Extension for SEC action until April 12, 2023

Expungement Guidance

Frequently Asked Questions About Rule 2080

Discussion Paper – Expungements

[3]   According to FINRA’s SEC filing it “is mandated by federal statute to collect and maintain registration information about broker-dealer firms and their associated persons. To satisfy this statutory responsibility, FINRA operates the CRD system, the central licensing and registration system used by FINRA, the SEC, other self-regulatory organizations, state securities regulators and broker-dealer firms.  The CRD system fulfills FINRA’s statutory obligation to establish and maintain a system to collect and retain registration information set forth in Section 15A(i) of the Exchange Act. FINRA, state securities regulators and the SEC use the CRD system as an important source of regulatory information to help inform registrations, examinations, investigations and disciplinary actions to protect investors and safeguard the markets.” (page 12 of 298)   Also see: