Proposed New Changes to the FINRA Rule 2080 Expungement Process

If you have customer complaints or adverse disclosures reported on your FINRA Central Registration Depository (CRD) against you, those CRD disclosures can seriously hurt your reputation in the securities industry. FINRA CRD complaints may involve claims of sales practice violations, forgery, theft, or misappropriation or conversion of funds. In this article, we take a look at the proposed new changes to the FINRA Rule 2080 Expungement Process.

FINRA’s Central Registration Depository (CRD) covers all the registration, qualification, employment, and disclosure records of broker-dealer firms, offices, and financial service professionals with a securities license. It also includes publicly accessible information about any customer disputes on your record.

Disputes or misconduct claims can severely damage your firm and professional name. Of course, when these disputes are inaccurate or simply not true, you want to set the record straight. FINRA Rule 2080 allows you to do so by petitioning for expungement.

You can petition FINRA for expungement after one of the following happens:

  • A judicial panel dismisses claims against you and rules for expungement,
  • You settle with a claimant and the settlement includes expungement terms, or
  • An arbitration panel determines that expungement is proper after a full hearing.

However, you must follow the expungement process properly to get a successful result. This can get complicated – and FINRA has proposed new rule changes with the SEC.

How to Expunge Dispute Information Under FINRA Rule 2080

Under Rule 2080, expungement is an extraordinary remedy to remove inaccurate customer dispute information from the CRD system. Rule 2080 applies only to customer-related information, not industry disputes between firms (although the standards for intra-industry disputes are substantially identical). A FINRA expungement could target customer complaints, firm U5 disclosures, arbitration awards, or civil litigation disclosures.

Additional Legal Obligations Under Rule 2080

  1. You must get a court order either directing the expungement or confirming an expungement that was awarded as part of a settlement in arbitration, and
  2. You must name FINRA as a party to the court proceedings and serve them all of the appropriate documents unless you get a waiver.

How do you get a waiver? You can submit a waiver request to FINRA along with copies of all the documents relevant to the expungement – the settlement agreement, arbitration award, statement of claim, etc. An experienced attorney can help you put together a complete request with all the necessary documentation to get you the best chance of approval.

FINRA’s Standards of Review for Expungement Under Rule 2080

FINRA grants expungement requests if you can prove one of the following:

  • The information is clearly erroneous or factually impossible,
  • The registered entity wasn’t actually involved in the alleged violation, or
  • The information in the claims or allegations is shown to be false.

When determining whether to grant a waiver in the scenario above, FINRA will decide whether the judicial or arbitral findings for expungement meet the same standards. This process could involve document production requests or live evidentiary hearings to conclude.

Changes Under the New 2022 Proposed Rules

In July 2022, FINRA proposed the following rule changes under SEC Rule 19b-4:

  1. “Straight-in” expungement requests must be decided by a 3-person panel randomly selected from a list of experienced and trained public arbitrators
  2. The parties cannot request that the 3-person panel have fewer arbitrators, pre-select their arbitrators, or have any of the assigned arbitrators removed
  3. You must notify state securities regulators of all expungement requests
  4. There should be a mechanism for state securities regulators to attend and participate in expungement hearings for “straight-in” requests
  5. “Straight-in” requests should have strict time limits for filing
  6. Creating codified and updated “best practices” for expungement guidance
  7. The panel must agree unanimously before an expungement is granted
  8. Establishing procedural requirements for filing expungement requests
  9. Amending the Customer Code with procedures for simplified arbitrations

These are just proposed rules at this point – they have yet to go through the process of approval. By the time the proposals get codified into law, they may shift and change. It’s important to keep an eye on these changes if you’re seeking expungement.

Securities litigation and dispute resolution make up a niche and nuanced area of law. Administrative proceedings for agencies like FINRA come with a number of idiosyncratic rules and regulations that require a deft hand and familiarity with securities rules and regulations to navigate properly. In the securities world, you must protect your reputation – and Rule 2080 expungement does just that.

Click here to contact the Warren Law team now about your FINRA expungement questions.

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Thomas McCabe

Thomas J. McCabe, Partner