Is FINRA making it harder to expunge black marks?

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Is FINRA making it harder to erase black marks on your record? Maybe. But unlike elementary school, you can’t do a book report to lift you out of detention, unless it’s to detail an egregious finding in your official BrokerCheck report.

FINRA does want to be fair to everyone. So at its September 2015 Board of Directors meeting, the Authority voted to codify the rules of expungement.

Narrow grounds for expungement

Chairman and CEO Rick Ketchum noted that the regulators are “strengthening the expungement regulatory framework” to codify current best practices outlined in FINRA Rules 12805 and 138051, and establish procedures that arbitrators must follow before recommending expungement of customer dispute information related to arbitration cases from a broker’s Central Registration Depository (CRD®) record.

These procedures are intended to ensure that expungement occurs only when the arbitrators find and document one of the narrow grounds specified in Rule 2080. Qualifying grounds require that:

  • the claim, allegation or information is factually impossible or clearly erroneous;
  • the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
  • the claim, allegation or information is false.

Adds Ketchum, “These changes are part of our ongoing effort to strengthen the expungement regulatory framework. In addition to requiring submissions to the arbitration panel of the BrokerCheck report, changes would codify for example, current best practices.  [FINRA’s] goal, is to provide customers with transparency with respect to a broker’s prior issues, while providing brokers with the right to have information expunged from their report when that information is unfair and just frankly false.”

According to an article in InvestmentNews, Ketchum underscored that FINRA seeks to remind arbitrators that expungement is “an extraordinary remedy that should be recommended only under appropriate circumstances.” He went on to say that “customer dispute information should be expunged only when it has no meaningful investor protection or regulatory value.”

But how do you track that information? How do you ensure the arbitrators and the regulators get the full story? How is your firm managing oversight, documenting compliance, and so on? Are you doing it yourself? If so, how’s that going? How about outsourcing the burden of tracking and organizing your data and documents to an independent regulatory archival and compliance solutions specialist, like us to help keep your ducks in order? Ask about Patrina’s comprehensive regulatory archival and compliance solutions specifically designed for Broker/Dealers, RIAs, and FCMs.

Let’s talk (212- 233-1155).

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