Notice to Arbitrators and Parties on Expanded Expungement Guidance

FINRA adopted FINRA Rules 12805 and 138051 to establish procedures that arbitrators must follow before ordering expungement of information related to arbitration cases from a broker's Central Registration Depository (CRD®) record. The procedures are intended to ensure that expungement occurs only when the arbitrators find and document one of the narrow grounds specified in Rule 2080:

 

  • 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.


FINRA Dispute Resolution is publishing the following guidance and reminder for arbitrators when considering expungement requests.


Extraordinary Nature of Expungement Relief


Expungement is an extraordinary remedy that should be granted only under appropriate circumstances. Information should be expunged only when it has no meaningful investor protection or regulatory value. Once information is expunged from the CRD system, it is permanently deleted and thus no longer available to the investing public, regulators or prospective broker-dealer employers.


Role of Arbitrators in Expungement Cases


Arbitrators have a unique, distinct role when deciding whether to grant a request to expunge information from a broker's CRD record. In making these determinations, arbitrators should consider the importance of maintaining the integrity of the information in the CRD system. Ensuring that CRD information is accurate and meaningful is essential to investors, who may rely on the information when making decisions about brokers with whom they may conduct business; to regulators, who rely on the information to fulfill their regulatory responsibilities; and to prospective broker-dealer employers, who rely on the information when making hiring decisions.


Given this significant role, arbitrators should ensure that they have all of the information necessary to make an informed and appropriate recommendation on expungement. Thus, arbitrators should request any documentary or other evidence they believe is relevant to the expungement request, particularly in cases that settle before an evidentiary hearing or in cases where only the requesting party participates in the expungement hearing.


BrokerCheck Report Review


Arbitrators should ask the broker seeking expungement (or the party seeking expungement on a broker's behalf) to provide a current copy of the BrokerCheck® report. Arbitrators should carefully review the report when considering whether expungement is appropriate. Arbitrators should pay particular attention to the "Disclosure Events" section of the report.


Importance of Providing an Explanation for Granting Expungement


Rules 12805 and 13805 require arbitrators to provide a written explanation of the reasons for finding that one or more of the Rule 2080 grounds for expungement apply to the facts of the case before them. Arbitrators recommending expungement should ensure that the explanation is complete and is not solely a recitation of one of the Rule 2080 grounds or language provided in the expungement request. Specifically, arbitrators should identify in the award the reason(s) for granting the request and any specific documentary or other evidence that they relied upon in granting expungement.


Asking Whether Settlements Are Conditioned on Agreements Not to Oppose Expungement


Arbitrators should inquire and fully consider whether a party conditioned a settlement of the arbitration upon agreement not to oppose the request for expungement in cases in which the investor does not participate in the expungement hearing or the requesting party states that an investor has indicated that he or she will not oppose the expungement request.


Conclusion


In summary, arbitrators have a unique, distinct role in ensuring that information is expunged from the CRD system only when it has no meaningful investor protection or regulatory value. In addition to the standards outlined in Rules 2080, 12805 and 13805, arbitrators should consider the guidance in this notice when considering expungement requests.

 


1  12805/13805 (Expungement of Customer Dispute Information under Rule 2080)
In order to grant expungement of customer dispute information under Rule 2080, the panel must:
(a) Hold a recorded hearing session (by telephone or in person) regarding the appropriateness of expungement. This paragraph will apply to cases administered under Rule 12800 even if a customer did not request a hearing on the merits.
(b) In cases involving settlements, review settlement documents and consider the amount of payments made to any party and any other terms and conditions of a settlement.
(c) Indicate in the arbitration award which of the Rule 2080 grounds for expungement serve(s) as the basis for its expungement order and provide a brief written explanation of the reason(s) for its finding that one or more Rule 2080 grounds for expungement applies to the facts of the case.
(d) Assess all forum fees for hearing sessions in which the sole topic is the determination of the appropriateness of expungement against the parties requesting expungement relief.
 



View the following for additional information: