Page 35 - Investment Advisor June 2022
P. 35
THE PLAYING FIELD
By Melanie Waddell
FINRA Wants to Make It Harder for Brokers
to Clear Their Records
FINRA found its arbitrators granted 78% of requests for expungement,
which is supposed to be an “extraordinary” remedy.
hile the Financial Industry granted solely in limited circumstances.
Regulatory Authority is forg- Despite most everyone’s best intentions,
Wing ahead with an overhaul the current system of arbitrator-award-
of its expungement process — which has ed expungements does not operate
faced increasing criticism — its arbitra- within these parameters.”
tors allow too many brokers to wipe NASAA, Lubin continued, has “worked
their records clean, industry experts say. closely with FINRA and encouraged it to
In a just-released discussion paper, close gaps in the existing process and
FINRA says that it plans to continue initiate steps toward more meaningful
to reform its expungement process “so expungement reform. We look forward
that it operates as intended — as a rem- to continuing engagement and discus-
edy that is appropriate only in limited sion with FINRA on how to reform the
circumstances in accordance with the expungement process.”
narrow standards in FINRA rules.” For a broker to have a customer com-
FINRA’s discussion paper, plaint or arbitration disclosure through
FINRA says that it plans Expungement of Customer Dispute FINRA expunged, Edmiston explained,
to continue to reform its Information, which focuses on “there must be an arbitration award”
granting the relief.
expungement of customer dispute infor-
expungement process mation from the Central Registration “Only two numbers matter when
“so that it operates as Depository licensing and registration looking at how often arbitrators decide
system and BrokerCheck, reports that
expungement requests: the awards issued
intended — as a remedy 78% of all requests by brokers to wipe in which expungement is requested and
that is appropriate only a dispute from BrokerCheck “that go the awards granting expungement,” he
in limited circumstances to award are granted by arbitrators,” said. “Any introduction of factors out-
side the arbitrators’ control, (e.g., a bro-
said Michael Edmiston, an attorney with
in accordance with the Jonathan Evans & Associates. ker abandoning a claim) is a dilution of
“The percentages of expungements
narrow standards in granted between 2016 and 2021 are still the disappointingly high rate at which
expungements are still being granted.”
FINRA rules.” too high for what is supposed to be an FINRA’s report states that less than
extraordinary remedy,” Edmiston, presi- 1% of FINRA-registered professionals
dent of the Public Investors Advocate Bar have expunged a customer dispute dis-
Association, told me in an email message. closure. That’s around 10% of the bro-
PIABA is a group for lawyers who repre- kers who have a dispute on their record.
sent investors in disputes against brokers. Edmiston points out that “the less
“NASAA’s position on expungement is than 1% of reps hav[ing] an expunge-
clear,” Melanie Senter Lubin, Maryland ment, … does not change the fact
securities commissioner and presi- expungements are granted 78% of the
dent of the North American Securities time. Worse, the 1% argument minimiz-
Administrators Association, told me in es the investor harm many reps cause
early May in an email. “Expungement is after they receive an expungement.”
an extraordinary remedy that should be FINRA, Edmiston said, “does not
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