Finra approves plan for specialized arbitrators to decide broker expungements

Board also votes for proposal about brokers acting as client beneficiaries

Oct 3, 2019 @ 4:42 pm

By Mark Schoeff Jr.

The Finra board has advanced proposals to reform the process by which brokers can clear their record of customer disputes and to curb the ability of brokers to become the beneficiary or executor of a customer's will.

The Financial Industry Regulatory Authority Inc. board approved a total of six rule proposals at its Sept. 24-26 meeting in New York, according to a Finra statement released on Thursday.

One of the proposals would amend Finra arbitration rules to create a roster of arbitrators who have special training or expertise to adjudicate expungement cases. A three-person panel selected from the list would handle all requests related to settled cases, as well as those requested separately by a broker.

Through expungement, a broker can have a customer complaint removed from his or her profile in BrokerCheck, an online database of brokers maintained by Finra. Proponents of expungement say that it clears the records of brokers who are unfairly accused of wrongdoing. Critics say that it alters a broker's profile to hide disciplinary problems.

The board voted to file the expungement reform proposal with the Securities and Exchange Commission, which must approve Finra rules. The proposal was published for public comment in 2017.

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The Finra board also approved releasing for public comment a proposal that would require registered representatives to obtain permission from their firms before they become a beneficiary, executor, trustee or receive power of attorney for a customer.

A Finra spokesman declined to elaborate on the beneficiary proposal. Finra board members included in a video about the meeting did not provide details. It's not clear when the request for public comment about the proposal will be released.

Other proposals voted on by the board addressed publishing U.S. Treasury securities data, compensating disciplinary hearing panelists, reforming capital acquisition broker rules and enhancing requirements for inter-dealer quotation systems.

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