The Public Investors Advocate Bar Association released a report on recent expungement awards on Tuesday and renewed its call for the Financial Industry Regulatory Authority Inc. to change the way it handles expungements.
PIABA has asked the Securities and Exchange Commission not to approve arbitration rule changes proposed by Finra.
Analyzing 700 expungement awards from Aug. 1, 2019, to Oct. 31, 2020, PIABA found that arbitrators granted expungement requests 90% of the time.
“The data show that the reason is that Finra’s arbitration process allows brokers and brokerage firms to make expungement requests to arbitrators that are unopposed the vast majority of the time,” PIABA said in its study.
“The solution is simple,” the study continued. “To effectively prevent expungements of valid customer complaints, Finra must provide a meaningful opportunity for those with an interest in the outcome of the expungement request, e.g., securities regulators and the customers who submitted the complaints, to present evidence opposing expungement, when appropriate.”
PIABA said that while Finra’s current rule proposal purports to stop the abusive tactics used by brokers and brokerage firms in arbitration proceedings that were identified in a 2019 PIABA study, the proposed changes will not decrease the high percentage of expungements being granted.
The 2019 study looked at expungement-only arbitration cases filed from 2015 to 2018 and found that expungement was granted 81% of the time in 2018, down from 93% in 2015. An expungement-only case is one in which brokers initiate an action against their own firms without naming a customer.
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