Page 36 - Investment Advisor June 2022

report the recidivist rate, the likelihood ing expungement relief more often than STATE REGULATORS’ ROLE
a rep with an expungement will gen- panels deciding expungement requests As the paper noted, FINRA has engaged
erate more customer complaints. The made in customer-initiated arbitrations.” in “longstanding efforts” with the North
key numbers missing from FINRA’s American Securities Administrators
statistics is the number of subsequent SPECIAL ROSTER PLAN STILL ALIVE Association and state securities regula-
customer complaints generated and the FINRA noted that it has taken “numer- tors “to explore a redesign of the current
amounts of money alleged to be lost ous, meaningful steps to enhance the expungement process.”
after a rep received an expungement.” current expungement process,” and that According to NASAA, the paper stated,
Protecting the integrity of the FINRA will continue to do so. “[s]tate securities regulators are often
information in the CRD program and For instance, FINRA said that its spe- legally obligated to maintain the informa-
BrokerCheck, FINRA said, “is essential to cial roster proposal — which was with- tion in the CRD system as a state record.”
FINRA’s mission of investor protection.” drawn in May 2021 — would address “a NASAA “has indicated that expunge-
FINRA stated in its paper that it has number of significant issues” related to ment of customer dispute information
“engaged in longstanding efforts potentially implicates the public
with NASAA and state securi- ‘A troubled broker with a records obligations of state govern-
ties regulators to explore a rede- ments,” FINRA said in the paper.
sign of the current expungement record sanitized through Edmiston pointed out that “an
process.” The paper, FINRA expungement creates a trap unexplained part of the expunge-
said, “is intended to inform and ment process is how and why all
encourage a continued dialogue for even the wariest investors.’ fifty states have allowed arbitra-
regarding potential changes tors to alter state records with
to the process used to resolve —Michael Edmiston, Jonathan expungement awards.” FINRA, he
requests to expunge customer continued, “wants to address that
dispute information.” Evans & Associates issue, too. I am hopeful any new
Edmiston argued that process will be designed to com-
“expungement is a transparency issue the current expungement process, and prehensively protect the states’ records.”
for informed investor choice. FINRA that FINRA intends to continue pursu-
constantly tells investors to review their ing that plan. NEW ADMINISTRATIVE PROCESS
broker’s BrokerCheck report before Last May, FINRA said that it had In its paper, FINRA also said it was
investing. Expungements remove infor- withdrawn from the Securities and contemplating whether to replace the
mation from BrokerCheck.” Exchange Commission its rule filing use of arbitration to resolve expunge-
Knowing a broker has a history of establishing a special roster of arbitra- ment requests “with a new administra-
misconduct, Edmiston maintained, tors for expungement requests so that it tive (non-arbitration) process in which
“allows a customer to make an informed could think about revising the rule. FINRA and state securities regulators
choice to take the risk of working with PIABA had said at the time that the would determine whether the standards
that broker or go down the street to the plan, which would create a roster of for expungement have been met.”
92% of brokers who have clean records. arbitrators with enhanced training and Setting up a new administrative pro-
A troubled broker with a record sani- experience to decide whether to expunge cess, however, “presents policy issues
tized through expungement creates a customer complaints, would not solve the that will need to be considered more
trap for even the wariest investors.” problem of brokers gaming BrokerCheck. fully, may require action by the SEC
PIABA has maintained that brokers According to the discussion paper, and state securities regulators, and may
continue to “game” BrokerCheck. FINRA’s board of governors continues also require federal or state legislation,”
For instance, one tactic involves a to consider further changes to the spe- FINRA pointed out.
“straight-in expungement” in which the cial roster proposal. The paper does not, Edmiston said he was “heartened”
broker files an arbitration case against their however, provide information on when that FINRA was “taking a top-to-bot-
current or former brokerage firm request- FINRA intends to refile the proposal tom approach in its considerations of
ing the expungement of a customer com- with the SEC. reforming the expungement process and
plaint. The customer is not made aware of That said, FINRA said that the integ- announcing a willingness to consider
the request, nor are state regulators. rity of the CRD system “should be pro- an entirely new process for handling
FINRA’s paper points out that tected in the near-term by adopting the expungement requests.”
straight-in requests “present inherent substantial improvements to the current
difficulties.” Arbitration panels “deciding expungement process that can be readily Washington Bureau Chief Melanie Waddell can
straight-in requests issue awards contain- achieved” with the special roster proposal. be reached at [email protected].

34 INVESTMENT ADVISOR JUNE 2022 | ThinkAdvisor.com