The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization, a not-for-profit, non-governmental regulator for all broker-dealer firms and brokers that sell securities in the United States. FINRA protects investors by ensuring that broker-dealers and brokerage firms operate fairly and honestly. Brokers and FINRA-registered financial professionals often come to us when looking to settle a FINRA dispute. In this article, we are going to look at what this means as well as the standards for the expungement of a dispute.
The Central Registration Depository (CRD)
FINRA maintains and operates a public database that contains all kinds of administrative and disclosure information, including information relating to customer disputes, to support its investor protection efforts and mandate. This online database is known as the Central Registration Depository (CRD), accessed via FINRA’s BrokerCheck.
BrokerCheck is an online tool that helps investors research FINRA-registered brokerage firms and their professionals. Most of the information submitted to CRD is made publicly available through BrokerCheck. However, BrokerCheck only provides some of the information in the CRD system.
What Is Expungement?
FINRA, along with other regulators in the securities industry, uses the CRD system to license and oversee firms in the broker-dealer industry. Derogatory information, such as false, erroneous, or factually impossible customer complaints on a BrokerCheck report, can be detrimental to a broker and their firm’s career and reputation. This is why a FINRA dispute is such a big deal to a broker or firm.
As such, brokerage firms or registered representatives strive to ensure that their record is free from adverse disclosure events. Broker-dealer firms are permitted to remove customer dispute information from their CRD records through a process known as expungement.
How Expungement Works
Expungement is the procedure by which broker-dealer firms or FINRA-registered financial professionals seek to remove customer complaints and other damaging disclosures from the CRD system. Once these defamatory, false, erroneous or factually impossible complaints are proven, and then confirmed, this information is wiped clean and no longer available to investors, regulators, or brokerage firms in the CRD system.
FINRA will only expunge customer dispute information from CRD pursuant to a court order. There are two ways to obtain a court order compelling FINRA to expunge customer dispute information:
- A broker-dealer or registered representative seeking to expunge customer complaint information files for arbitration through the FINRA Dispute Resolution Process. Independent arbitrators will review the merits of the expungement request in a hearing session and issue a written statement citing grounds for their recommendation to grant or deny it.
- A broker-dealer or registered representative seeking to expunge customer complaint information obtains an order directly from a court of competent jurisdiction to expunge customer dispute information from the CRD system. No arbitration forum is necessary.
Standards for Expungement of Customer Dispute Information
Expungement of a FINRA dispute allows broker-dealer firms or registered representatives to permanently delete customer dispute information from their CRD records. Expungement is an extraordinary remedy that FINRA will only grant under a narrow set of circumstances.
FINRA’s Rule 2080 specifies three standards or grounds for the expungement of customer dispute information from the CRD system that may be awarded.
1. The claim, allegation, or information is factually impossible or clearly erroneous
If arbitrators find the claimant’s version of events to be factually impossible upon reviewing evidence, this standard provides a basis for expungement.
2. The registered representative was not involved in the alleged investment-related violation, forgery, theft, misappropriation, or conversion of funds.
This standard requires the claimant requesting expungement to prove that the registered representative was not involved in the alleged investment-related violation.
3. The claim, allegation, or information is false.
Under this standard, the broker-dealer or registered representative requesting expungement must provide credible evidence that the complaint involved false information.
FINRA will expunge customer dispute information on these three grounds or standards. Arbitrators must indicate which of these grounds serves as the basis for expungement before recommending the removal of customer dispute information under Rule 2080. Suppose you are a broker-dealer or registered representative and have received a complaint on your CRD record. In that case, it’s imperative that you work with an experienced FINRA expungement attorney to ensure your record is cleared successfully. Contact the team at Warren Law Group to further discuss any potential FINRA dispute or expungement matters.