FINRA’s Proposed Expungement Limits Headed to SEC for Final Approval

In late 2020, FINRA sent to the SEC for its final review and approval a set of changes to the expungement process that would fundamentally reshape the legal landscape in this area. FINRA’s proposal runs to 557 pages, so we’ll limit our discussion here to just a handful of key points:

• Associated persons (“APs”) who are named as Respondents in a customer arbitration would have to request expungement as part of the hearing of the case, or else forfeit their right to seek expungement altogether.
• APs who are not named Respondent in the customer arbitration, but whose CRDs are marked up due to the customer complaint, would have two years from the date the arbitration or litigation closes before their time to seek expungement would expire.
• If the customer complaint that leads to the CRD mark does not result in an arbitration, then the AP would have six years to seek expungement
• APs with “straight-in” expungement requests—as opposed to requests that accompany a larger arbitration proceeding—would no longer have the ability to rank, strike or stipulate to a specific arbitrator; instead, FINRA will use its database to randomly select and assign three arbitrators to each case (as opposed to the single arbitrator who now hears straight-in expungement requests). This provision alone will substantially increase the cost for APs seeking expungement.

The SEC has not announced a timetable for its expected adoption of the proposed rule changes, but financial advisors should be aware of the likely and imminent changes.

If you are a financial advisor who wants to seek expungement of an inaccurate and harmful mark on your CRD, please contact a securities attorney at the Galbraith Law Firm, by calling 212.203.1249 or emailing kevin@galbraithlawfirm.com for a free, confidential consultation.