FINRA Proposes Rule Regarding Prohibited Conditions Relating to Expungement of Customer Dispute Information (Fed. Reg.) (with Lofchie Comment)

FINRA published in the Federal Register a proposed rule change to adopt FINRA Rule 2081 to prohibit member firms and associated persons from conditioning or seeking to condition the settlement of a dispute with a customer on, or to otherwise compensate the customer for, the customer's agreement to consent to, or not to oppose, the firm's or associated person's request to expunge such customer dispute information from the Central Registration Depository ("CRD").

Comments on the proposed rule should be submitted by May 14, 2014.

Lofchie Comment: To a great extent, this rule proposal raises the same question as the SEC's announcement that in many cases it will refuse a settlement unless it can obtain an admission of guilt. While that may be a good policy in the long run, in any discrete situation, it may result in a defendant's deciding that it would rather litigate than settle, the result being a potential drain on the SEC's resources. As for settlements with customers, certainly it would be reasonable for an accused representative to make a decision that he/she would rather not settle a dispute if the settlement will appear on the representative's record, the result being that the customer dispute will have to go to arbitration or trial. Thus, what is good in the long run may well be detrimental to any individual customer seeking to settle a dispute.If the rule is adopted, it might be very interesting for FINRA to attempt to determine the extent to which the rule has an effect on the ability of customers and representatives to resolve disputes.

See: 79 FR 22734.See generally: FINRA Rule Calendar (accessible to Cabinet subscribers only).Related news: FINRA Proposes Rule Regarding Prohibited Conditions Relating to Expungement of Customer Dispute Information (April 14, 2014).