Finra adopts reforms to make it tougher for brokers to clear their records

investmentnews.com:

Attorneys who represent investors in actions against brokerages and registered representatives are hopeful that expungement reforms Finra enacted late last week will make it harder for reps to clear their records of disputes.

The Financial Industry Regulatory Authority Inc. on Friday adopted amendments to its expungement procedures, which allow reps to remove customer complaints from the Central Registration Depository system and their BrokerCheck profiles.

The new rule establishes a special roster of arbitrators to hear so-called straight-in expungement requests, or those that are filed by a registered representative separately from a customer arbitration. It also requires brokers to file a straight-in requests within two years of the closing of a customer arbitration or civil litigation. Other changes include requiring earlier notification of customers and state regulators when brokers seek expungement and allowing state regulators to participate in straight-in requests.

The Securities and Exchange Commission approved the reforms in April. The regulatory notice Finra posted Friday said they will go into effect Oct. 16.

Finra has been wrestling with expungement reform for years. The rulemaking process for the latest reforms began in September 2020 and included a withdrawal of the proposal in July 2021, after securities attorneys and state regulators questioned whether they were tough enough to stop what they assert is a too permissive expungement process. Finra re-proposed the rule in July 2022.

One of the leading proponents of expungement reform — the Public Investors Advocate Bar Association — said Finra is going in the right direction.

“This rule is a good start,” said PIABA President Hugh Berkson. “Let’s see it work