A Finra proposal designed to make it tougher for brokers to clear their records of customer disputes has finally crossed the finish line.
On Wednesday, the Securities and Exchange Commission approved the measure, which would tighten procedures for brokers seeking expungement.
The Financial Industry Regulatory Authority Inc. filed the original version for SEC approval in September 2020. The broker-dealer self-regulator withdrew the proposal in July 2021 to make modifications after investor attorneys and state securities regulators raised concerns that the reform would not sufficiently strengthen what they called a too-lenient expungement process.
Finra filed a revised version of the proposal last July with the SEC. The 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. Expungement is determined in the same Finra dispute resolution system where arbitration cases are adjudicated.
The rule requires brokers to file a straight-in expungement request within two years of the closing of a customer arbitration or civil litigation. If there is no arbitration or litigation, the time limit is three years from when a customer complaint is filed in the Central Registration Depository system, which populates the public BrokerCheck database.
The rule also requires earlier notification of customers and state regulators when brokers seek expungement and allows state regulators to participate in straight-in requests.
Last fall, state regulators continued to say the proposal didn’t go far enough. A spokesperson for the North American Securities Administrators Association, the umbrella organization for state regulators, was not immediately available for comment.
After the SEC’s approval of the proposal, another group that has deep concerns about expungement — the Public Investors Advocate Bar Association — expressed optimism about the reform.
“We’re thrilled,” said Richard Lewins, president of the PIABA Foundation and a Dallas securities attorney. “This is a long time coming. This is all under the rubric of investor protection.”
A 2021 PIABA study showed that Finra arbitrators grant 90% of expungement requests. The proposal could start to bring that approval level down, said PIABA president Hugh Berkson.
“It’s a positive move forward,” said Berkson, a principal at McCarthy Lebit Crystal & Liffman. “For too long, expungement has seemingly been an automatic process. You ask for it. You get it. The hope is that with the changes, expungement will be treated as it was designed to be — an extraordinary remedy.”
Often when brokers file straight-in expungement requests, they bundle many years’ worth of customer disputes into one action. Sometimes they would go back 20 years, said Jason Doss, founding director of the PIABA Foundation.
That practice could be curbed with the new time limits.
“Having a time limit on how far back a broker can go … limits the pool of eligible complaints that can be expunged,” said Doss, an Atlanta securities attorney.
Doss also is pleased state regulators will be able to bring a regulatory perspective to expungement proceedings. But they will have to get up to speed on how the arbitration process functions. The PIABA Foundation is going to offer free courses for state regulators later this year.
“Arbitration training is going to be key,” Doss said. “It’s almost like a new practice.”
A new proposal could end the ban on promoting client reviews in states like California and Connecticut, giving state-registered advisors a level playing field with their SEC-registered peers.
Morningstar research data show improved retirement trajectories for self-directors and allocators placed in managed accounts.
Some in the industry say that more UBS financial advisors this year will be heading for the exits.
The Wall Street giant has blasted data middlemen as digital freeloaders, but tech firms and consumer advocates are pushing back.
Research reveals a 4% year-on-year increase in expenses that one in five Americans, including one-quarter of Gen Xers, say they have not planned for.
Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.
Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.
