Warren to FINRA: What’s Happening on Expungement Changes?
Posted on Categories Broker-Dealer, FINRA Code of Arbitration, Professional Conduct, Securities ArbitrationTags , , ,

Senator Elizabeth Warren has written to FINRA inquiring about the status of Board-approved changes on expungement.

We reported in SAA 2018-48 (Dec. 19) that FINRA’s Board of Governors met last December and approved major changes on expungement. Specifically, the post-Board meeting Report stated: “The Board approved proposed amendments to the Codes of Arbitration Procedure for Customer and Industry Disputes to codify the Notice to Arbitrators and Parties on Expanded Expungement Guidance and modify the fees for small claim expungement.”

Possible Changes

What might be changed? While it’s not entirely clear, the Board Report seems to limit the action to codifying the Expanded Expungement Guidance and establishing a small claim expungement fee schedule. On the other hand, perhaps some changes emanated from Regulatory Notice 17-42? Recall that, in keeping with the “new normal,” when it comes to rulemaking, the Board previously authorized staff to publish what became Regulatory Notice 17-42, FINRA Requests Comment on Proposed Amendments to the Codes of Arbitration Procedure Relating to Requests to Expunge Customer Dispute Information. The comment period ended February 2018. We summarized in SAA 2017-46 (Dec. 6), the proposed changes taken mostly verbatim from FINRA’s December 2017 Press Release announcing the Regulatory Notice: 1) establish a roster of arbitrators with additional training and specific backgrounds or experience from which a panel would be selected to decide requests for expungement of customer dispute information in settled cases and in cases brought for the sole purpose of seeking expungement (ed: this comports with a Dispute Resolution Task Force recommendation appearing on page 27 of the Final Report); 2) change the timeframe in which an associated person can seek expungement of the customer dispute information (ed: 60 days before the first scheduled hearing session); and 3) require the unanimous consent of a three-person panel of arbitrators to grant expungement.

Warren to FINRA: What’s Happening?

Whether it’s just codification or the 17-42 changes as well, Senator Elizabeth Warren (D-MA) on March 21st wrote to FINRA President and CEO Robert W. Cook inquiring where things stand on proposed changes on expungement. The three-page letter describes FINRA’s role in managing the CRD, and acknowledges steps the Authority has taken over recent years to tighten up the expungement process. It then poses six questions FINRA was to answer by April 4, two of which directly concern the proposals: “When does FINRA expect to submit its proposed rule changes related to the codification of the Notice to Arbitrators and Parties on Expanded Expungement Guidance to the SEC for approval? When does FINRA expect to submit its new expungement regulations (Regulatory Notice 17-42) to the SEC for approval?” The largely friendly letter closes as follows: “Given FINRA’s crucial role in promoting safe markets and regulating the securities industry, it is of utmost importance that the organization consider the impact of broker expungement on the future misconduct of industry brokers.”

(ed: *Senator Warren’s letter cites a November 2018 study showing that 70% of expungements are granted. **We will track this one and report on FINRA’s response.) (SAC Ref. No. 2019-14-01)

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