FINRA Poised to Add New Challenges, Costs to Customer-Related Complaint Expungement Process

FINRA brokercheck CRD U5 Expungement

FINRA Poised to Add New Challenges, Costs to Customer-Related Complaint Expungement Process

Changes are on the horizon for expungement – at least for the expungement of customer complaints. As reflected in a Release by the Securities and Exchange Commission, FINRA is poised to impose further requirements on expungement requests filed by:

  • an associated person during an investment-related, customer-initiated arbitration,
  • a party to the customer arbitration on behalf of an associated person known as an “on behalf of” request), or
  • an associated person outside of a customer arbitration (known as a “straight-in” request).

The modifications are designed to close loopholes in the FINRA rules which make it potentially easier and cheaper to expunge customer dispute disclosures. The proposed rule changes would, among other things:

  1. Require that straight-in requests are decided by a three-person panel, randomly selected from a roster of experienced public arbitrators with enhanced expungement training. Previously, straight-in requests could be heard by a single arbitrator.
  2. Prohibit parties to a straight-in request agreeing to fewer than three arbitrators, stipulating to an arbitrator’s removal, or stipulating to the use of pre-selected arbitrators.
  3. Notify state securities regulators of all expungement requests and provide a mechanism for state securities regulators to attend and participate in expungement hearings in straight-in requests.
  4. Set strict time limits on the filing of straight-in requests. FINRA would bar any expungement request made: a) more than 3 years after the date the customer complaint is originally reported in the CRD system (if no customer-initiated litigation or arbitration occurs); or b) more than 2 years after the close of customer-related arbitration or litigation.
  5. Require unanimous agreement of the panel members to grant an expungement.

At bottom, these new restrictions are designed to make the expungement process more difficult for the registered representative. These proposed changes are in addition to changes in the expungement process already enacted, including a required minimum $1,575 filing fee for straight-in requests. Previously, straight-in requests could avoid a large filing fee under FINRA’s arbitration fee schedule by seeking a nominal amount of damages.

FINRA plans to implement these new rules in October 2023; associated persons and member firms should be cognizant of the hurdles these new rules will bring.

If you are a FINRA associated person and are considering seeking expungement of a customer dispute, allegations related to an employment termination, or other disclosure, the attorneys at Prosser, Clapper & Johnson Law may be able to help. Please call (901)-820-4433 to schedule a consultation.

Recommended Resources:


FINRA Proposed Rule Changes

FINRA Rule 2080

FINRA Guidance On The Expungement Process

FINRA Regulatory Notice 23-12

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