Published on June 30, 2020
The rules around expungement for financial services professionals are changing this month. While this might sound like a bureaucratic change to legal procedure, its implications for personal securities industry reports should grab the attention of any financial services professional. This is because the effects of these changes will make it more difficult to remove information with “no meaningful investor protection or regulatory value” from reports.
First, let’s look at expungement and FINRA Rule 2080. Simply put, Rule 2080 regulates customer dispute information, and it requires a court to direct expungement before FINRA will start the process. FINRA’s procedure to grant expungement and thereby restore the reputation and livelihood of an unfairly treated financial services professional, is already a tedious task, made even more challenging by the organization’s strict requirements for expungement.
Here’s what is changing this month. Over the years, FINRA has continually added conditions to be met before granting expungement. By treating expungement as an “extraordinary remedy,” FINRA limits the number of expungements granted. The latest SEC-authorized rule change takes even more power away from the professional – who has already been absolved by courts and gives FINRA more authority to deny expungement.
Some of the latest guidance is this:
- Where there used to be no time limit on filing a request for expungement, requests must now be filed within one year of closed arbitration. If no arbitration resulted, the request must be filed within one year of the complaint being reported.
- Expungement decisions will no longer be made by one to three arbitrators. Instead decisions now must be made by a panel of three, meaning more time and cost is involved in choosing a panel.
- Expungement decisions will no longer be determined by majority vote. The vote now must be unanimous.
- Gone is the full roster of arbitrators. They will be replaced by newly trained “expungement-qualified” arbitrators.
- Hearings no longer can be conducted via phone. They now must be in-person (video acceptable if permitted by the arbitrators), which will result in higher costs.
- In expungement-only cases, one can no longer file a stand-alone arbitration seeking expungement. If a financial advisor is named as a party in arbitration, the expungement request must come during the arbitration case. No stand-along cases for expungement can be filed
- Filing fees will go from a minimum of $50 to a minimum of $1,425.
The purpose of Rule 2080 is to make sure investors have access to “accurate” information about financial services professionals. These changes, however, make the process of expunging inaccurate information from a record even more arduous and, in the end, run the risk of allowing misleading information to be used by investors in assessing a professional’s qualifications, merits, ability, and integrity.
Warren Law Group helps financial services professionals navigate these changes to Rule 2080. Our attorneys understand your concerns and obstacles as well as they do FINRA’s rules and regulations. Click here to learn about our range of FINRA-related services. With the support of a team that takes interest in your success, you can face these changing rules and procedures with confidence.