Finra Shelves Expungement Reform Proposal It Had Slated for SEC Approval
The Financial Industry Regulatory Authority said it withdrew “temporarily” a proposal to reform the procedures to expunge brokers’ public records, which it had before the Securities and Exchange Commission.
Finra pulled the proposal Friday—the same day as the deadline for the federal agency to approve its plan—after “consultations with the SEC staff,” the self-regulating agency said in a statement.
Finra’s withdrawal also follows by 10 days the release of a report by the Public Investors Advocate Bar Association criticizing the proposed reforms as inadequate and asking the SEC to reject them and instead establish more rigorous procedures to stanch the number of expungement requests that receive approval, including the appointment of investor advocates.
With its news, however, Finra officials stressed that it is not ready to throw in the towel on reforming expungement procedures.
“FINRA is committed to limiting the expungement process so that it operates as intended—as an extraordinary remedy, only appropriate in limited circumstances when the CRD [Central Registration Depository, the database behind BrokerCheck] information is clearly inaccurate,” Finra’s statement said.
“We continue to take meaningful steps to enhance controls on the existing expungement process in the near term, including our specialized panels proposal, while we work concurrently to support the development of fundamental, multi-stakeholder solutions,” it added.
In that vein, Finra officials on Friday also posted a new page on the industry self regulator’s website that highlights statistics to counter those advanced by PIABA to show how arbitration panels are granting brokers’ expungement at an accelerated pace.
PIABA calculated that brokers have achieved a 90% success rate in the past 15 months at having arbitrators grant their requests to expunge customers’ complaints from their public records.
Finra reframed the numbers debate on its new webpage, posting a pie chart that shows that of the roughly 35,000 customer disputes between 2015 and 2020, only 4% or 1,550 have been expunged.
The disparity between Finra and PIABA’s statistics is explained in part because the plaintiff lawyers are including all instances when arbitrators approved expungement requests, whereas Finra officials have winnowed the number to only expungements also approved by a court, since a customer complaint is not removed from BrokerCheck until a court confirms the arbitrator’s ruling.
A Finra spokesperson declined to comment on the withdrawal beyond the release.
PIABA members, however, were happy to claim credit for the likely redo.
“I think PIABA’s report and pressure from the SEC forced Finra to act,” said Andrew Stoltmann, a Chicago plaintiff lawyer and past president of PIABA.