Frequently Asked Questions about FINRA Rule 2080 (Expungement)

 

 

The following questions and answers provide guidance regarding the operation of FINRA Rule 2080.

1. What type of information can be expunged under FINRA Rule 2080?

FINRA Rule 2080 applies only to requests to expunge customer dispute information from CRD. Member firms, associated persons and regulatory authorities report registration information maintained in CRD by responding to questions on uniform registration forms, including Forms U4, U5 and U6. Customer dispute information (i.e., questions and disclosure reporting pages about customer arbitrations, civil litigations or customer complaints) is one type of registration information in CRD.

Updated 10/10/23

2. Effective October 16, 2023, FINRA revised its rules relating to the expungement of customer dispute information. Is it still necessary under FINRA Rule 2080 to obtain court confirmation of an expungement award?

Yes. FINRA Rule 2080 requires that a court of competent jurisdiction confirm arbitration awards containing expungement relief before FINRA will expunge customer dispute information from CRD.

Updated 10/10/23

3. What are the requirements of FINRA Rule 2080?

Under FINRA Rule 2080, members and associated persons seeking to expunge customer dispute information from CRD must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief. In addition, FINRA Rule 2080 requires that FINRA be named as an additional party to the court proceedings, and be served with all appropriate documents, unless FINRA waives that requirement. To request FINRA's waiver, the party seeking expungement must follow the steps outlined below in response to Question 7.

Updated 10/10/23

4. What steps should an associated person in an arbitration proceeding take to seek expungement of customer dispute information from CRD?

To seek expungement in an arbitration proceeding, an associated person must comply with the requirements of FINRA Rules 12800, 12805 or 13805, as applicable. FINRA Rules 12800 and 12805 apply to requests to expunge customer dispute information from CRD filed by an associated person during an investment-related, customer-initiated arbitration (customer arbitration), or filed by a party to a customer arbitration on behalf of an associated person. FINRA Rule 13805 applies to expungement requests filed by an associated person separate from a customer arbitration, also known as straight-in requests.

For additional information, see FINRA Rules 12800, 12805 and 13805 and Regulatory Notice 23-12.

Updated 10/10/23

5. When will FINRA consider waiving the requirement that it be named as an additional party in a court proceeding to confirm an arbitration award containing expungement relief?

FINRA Rule 2080 provides that FINRA may waive the obligation to name FINRA as an additional party if FINRA determines that the expungement relief is based on affirmative judicial or arbitral findings. FINRA Rules 12805 and 13805 outline the requirements with which an arbitrator or panel (panel) must comply to make affirmative findings that would support a waiver request.

First, a panel must find that one or more of the three narrow grounds for expungement enumerated in FINRA Rules 12805(c)(8)(A)(i) or 13805(c)(9)(A)(i), as applicable, has been established to issue an award containing expungement relief:

1. the claim, allegation or information is factually impossible or clearly erroneous;
2. the associated person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
3. the claim, allegation or information is false.

Second, the panel must indicate in the arbitration award which of the grounds for expungement serves as the basis for its expungement order, provide a written explanation of the reason(s) for its finding that one or more of those grounds apply to the facts of the request, and identify any specific documentary, testimonial or other evidence on which the panel relied in awarding expungement relief.

Third, if the award containing expungement relief is issued by a three-person panel, the decision must be unanimous.

If an arbitration award containing expungement relief complies with FINRA rules, FINRA may waive being named as an additional party in a court confirmation proceeding. To submit a request that FINRA waive being named as an additional party in a court confirmation proceeding, the party seeking expungement must follow the steps outlined below in response to Question 7.

Updated 10/10/23

6. What does FINRA consider when determining whether to oppose an expungement request in a court proceeding?

FINRA Rule 2080 requires that FINRA be named as an additional party in any court proceeding related to expungement of customer dispute information, unless FINRA waives being named. If FINRA is named in a court proceeding, FINRA will consider, among other things, whether the request for expungement complies with FINRA rules. 

Updated 10/10/23

7. If the arbitrators issue an award containing expungement relief, what is the next step for the member or associated person seeking expungement?

A party that obtains an award containing expungement relief may initiate a waiver request using the FINRA Rule 2080 Waiver Request Form. See the Tips for Rule 2080 Waiver Request Form page for more information about logging in to the system and completing the online form. The waiver request should include one pdf with the following documents: a letter requesting the waiver, and arbitration documents, such as the Statement of Claim, the Answer, any settlement agreement(s), the arbitration award, and any other relevant documents. Once you have successfully submitted the online form and uploaded documents, there is no need to follow up with hard copy documents.

FINRA staff will review the information submitted to determine whether the award complies with FINRA rules.

Updated 10/10/23

8. What happens after FINRA receives a request for a waiver?

Upon receipt of a waiver request, FINRA will review the information submitted to determine whether the award complies with FINRA rules. See Notice to Members 04-16 and Regulatory Notice 23-12. FINRA will provide a written response granting or denying the waiver request.

If FINRA denies the waiver request, the party seeking expungement must name FINRA as an additional party and must serve FINRA with notice as set forth in the response to Question 10 below, in any litigation to confirm the award.

If FINRA grants the waiver request, FINRA does not need to be named as an additional party in the confirmation proceeding. FINRA's decision to grant a waiver request, however, does not operate as a waiver of FINRA’s participation in any proceeding in which it is a named party. Thus, if a party elects to name FINRA in a court proceeding even after a waiver is granted, the party must serve FINRA with notice, as set forth in the response to Question 10 below, and FINRA must be provided an opportunity to participate.

Updated 10/10/23

9. Why may FINRA, and possibly States, choose to participate in court confirmation proceedings?

FINRA and States may choose to participate in court confirmation proceedings as a safeguard to ensure that courts are aware of FINRA rules, and relevant regulatory and investor protection interests. There are currently no other procedures in place to ensure that courts are made aware of the investor protection, public policy, and regulatory considerations implicated by expungement of customer dispute information.

Updated 10/10/23

10. If FINRA is named in a court proceeding as required by FINRA Rule 2080, how do I serve FINRA with the court papers?

FINRA should be served through its registered agent for service. More information about FINRA’s registered agent is available on the Contact FINRA page. Additionally, the name and address of FINRA’s registered agent is available through the Office of the Secretary of State in every jurisdiction where FINRA is registered to do business.

Updated 10/10/23

11. Will FINRA participate in every court proceeding that relates to expungement of customer dispute information?

No. As noted in response to Questions 3, 7 and 8 above, member firms and associated persons may ask FINRA to waive the requirement to name FINRA as an additional party on the basis that the award containing expungement relief complies with FINRA rules. The waiver process saves time and expense by enabling FINRA to review the awards and to determine whether a waiver is appropriate.

A court may also be asked to issue an order directing expungement of customer dispute information. As noted in response to Questions 3, 6 and 8 above, member firms or associated persons seeking expungement relief in court (as plaintiff or defendant) are required to name FINRA as an additional party. FINRA will consider each case filed in court based on the facts and circumstances presented.

Updated 10/10/23

12. On what basis will FINRA determine to participate in a court confirmation proceeding to oppose an award containing expungement relief?

FINRA may oppose confirmation of an award containing expungement relief if the award does not comply with FINRA rules. As a further means to ensure that the court is made aware of the investor protection and regulatory implications of an expungement, states may also choose to intervene in a court confirmation proceeding if they have concerns regarding investor protection or regulatory issues.

Updated 10/10/23