In December 2017, FINRA issued Regulatory Notice 17-42 to request comments on its proposed amendments to the procedures relating to requests to expunge customer dispute information from the Central Registration Depository (CRD) system and FINRA BrokerCheck system.
The proposed amendments include a number of important changes to the current process and impact the timing and procedure for reviewing expungement requests, including creating a roster of arbitrators specifically trained to review expungement requests. They also change the filing fees for expungement requests.
The highlights of the changes include:
I. All Requests for Expungement of Customer Dispute Information
A. Amend the Code to require that for all requests for expungement of customer dispute information:
1. The associated person who is seeking to have his or her CRD record expunged must appear (in person or by videoconference (not telephone)) at the expungement hearing; and
2. To grant expungement, a 3-person panel of arbitrators must unanimously agree that expungement is appropriate under Rule 2080(b)(1) and find that the customer dispute information has no investor protection or regulatory value.
II. Expungement Requests during the Underlying Customer Case
A. Limit an associated person who is named as a party to 1 opportunity to request expungement, and that opportunity must be exercised during the underlying customer case;
B. Create limitations on requests for expungement of customer dispute information, including a 1-year limitation period after the underlying customer case closes for an associated person to file an expungement request that was not decided during the underlying customer case;
C. Codify a party’s ability to request expungement on behalf of an associated person not named as a respondent in the underlying customer case (hereinafter referred to as an unnamed person) during the underlying customer case, and establish procedures for such requests;
D. Require associated persons who file expungement requests outside of the underlying customer case to file the request under the Industry Code against the firm at which he or she was associated at the time of the events giving rise to the customer dispute;
E. Remove the option to file an expungement request outside of the underlying customer case against a customer; and
F. Specify a minimum
filing fee of $1,425 for expungement requests.
III. Expungement Arbitrator Roster
A. Establish a roster of public chairpersons with training and additional qualifications to decide expungement requests (Expungement Arbitrator Roster) filed against a firm under the Industry Code.
IV. Expungement Requests in Simplified Arbitration Cases
A. Require that an associated person or an unnamed person wait until the conclusion of a customer’s simplified arbitration case to file an expungement request, which must be filed against the firm not the customer and would be heard by a panel selected from the Expungement Arbitrator Roster.
V. Expungement Requests relating to Customer Complaints that Do Not Result in an Arbitration Claim
A. Require that the associated person seek expungement of the customer dispute information relating to a customer complaint within one year of the member firm initially reporting the customer complaint to CRD.
FINRA will accept comments on the proposed amendments until February 5, 2018.
Please feel free to contact Kelley Drye & Warren LLP with any thoughts, comments or concerns.