State regulators say a Finra expungement proposal is a step in the right direction but falls short of what’s needed to curb abuses of the process, which allows brokers to clear customer disputes from their record.
Last month, Finra filed a proposal with the Securities and Exchange Commission that would implement reforms, such as establishing a special roster of arbitrators to hear expungement requests, requiring a unanimous vote by arbitrators to approve expungement and allowing state regulators to participate in expungement hearings.
The proposal was a revised version of one the Financial Industry Regulatory Authority Inc. withdrew in July 2021 after SEC staff indicated the agency had concerns about it. Finra’s modifications have drawn support from some expungement critics.
But the North American Securities Administrators Association is not yet on board.
“We still don’t think that that proposal has gone far enough,” Maryland Securities Commissioner Melanie Senter Lubin, the outgoing NASAA president, said Sunday at the organization’s annual conference in Nashville, Tennessee.
The problem is that expungement has become too easy for brokers to obtain, Lubin said. It should be “hardwired into the process and the rule” that expungement is “an extraordinary remedy.”
Involving state regulators in expungement hearings is a good move, but it’s not fully detailed in the proposal, she said.
“That is a step,” Lubin said. “We’re not quite sure how that’s going to play out.”
Lubin’s misgivings about the proposal are outlined in NASAA’s Sept. 6 comment letter to the SEC, whose comment period on the Finra proposal concluded earlier this month. The SEC must approve Finra rule proposals.
The main problem is the Finra approach tightens up expungement rules but doesn’t fundamentally overhaul the system, Lubin said.
“It really still doesn’t solve the problem,” she said. “We’re looking forward to continuing to work with Finra to come up with a better solution to the expungement problem. We’ll see what happens down the road.”
RIA aggregator adds $4.8 billion in client assets across seven states as demand grows for alternatives to traditional succession models.
As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management
Shareholder targets FS KKR Capital's directors over alleged portfolio valuation and dividend missteps.
UBS has a history of costly litigation stemming from the sale of volatile investment products.
New director David Woodcock puts firms on notice over fees, conflicts, and liquidity risk as private credit shows signs of stress.
As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management
Growth may get the headlines, but in my experience, longevity is earned through structure, culture, and discipline
