finra

FINRA

For Release:
Contacts:
Friday, December 14, 2007
Nancy Condon (202) 728-8379
Sarah Bohn (202) 728-8988

 

 

FINRA Board Approves Rule that Codifies Expungement Procedures for Arbitrators

 

Washington, DC — The Financial Industry Regulatory Authority (FINRA) announced today that its Board of Governors approved a rule proposal that would impose expungement procedures requiring arbitrators to take specific steps, including issuing a written explanation, before recommending expungement of information related to arbitration cases from a registered person's Central Registration Depository (CRD) record. This proposal is designed to assure that expungement occurs only when one of the narrow grounds specified in the FINRA rules—factual impossibility, no involvement by the registered person or falsity—is determined and documented by the arbitrators.

The proposed rule would require arbitrators considering an expungement request to hold a recorded hearing session by telephone or in person and provide a brief written explanation of the reasons for ordering expungement. In cases involving a settlement, arbitrators would be required to review the settlement documents to evaluate culpability by examining the amounts paid to any party and any other terms and conditions of the settlement before awarding expungement.

"It is critical that information in the CRD system, on which regulators, investors and the securities industry rely, is accurate and complete," said Linda Fienberg, President of FINRA Dispute Resolution. "These proposed changes will enhance the integrity of the reporting system and ensure investor protection."

FINRA operates the CRD system, which is an online registration and licensing system. The CRD system contains information regarding members and registered persons including information such as personal, educational, and employment history, as well as disclosure information such as criminal matters, regulatory and disciplinary actions, civil judicial actions and information relating to customer disputes. Much of the information in that system is available to investors through FINRA BrokerCheck.

Under FINRA's proposal, requiring a hearing will ensure that arbitrators consider the facts for and against expungement, particularly in cases in which the terms of a settlement agreement require the customer to consent to a request for expungement. In the case of a settlement, the arbitrators would be required to consider the settlement terms, including any amount paid, to aid in determining the culpability of the respondents.

In addition to the current requirement that the arbitrators state expressly which of the narrow grounds for expungement serve as the basis for their order, the proposed rule would require that arbitrators explain the underlying factual basis for their ruling. Under conduct rule 2130, arbitrators can order expungement of customer dispute information only when they have affirmatively found that the claim, allegation or information in the customer dispute is factually impossible or clearly erroneous; that the registered person was not involved in the alleged misconduct; or, that the claim, allegation or information is false. Any expungement of customer dispute information from CRD ordered in an arbitration award also requires court confirmation.

Under the new rule proposal, arbitrators would also be required to assess all forum fees for hearing sessions in which the sole purpose is to determine the appropriateness of expungement against the parties requesting expungement relief.

The rule proposal will be submitted to the Securities and Exchange Commission for review and approval.

FINRA, the Financial Industry Regulatory Authority, is the largest non-governmental regulator for all securities firms doing business in the United States. Created in 2007 through the consolidation of NASD and NYSE Member Regulation, FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business—from registering and educating all industry participants to examining securities firms; writing and enforcing rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web site at www.finra.org.