SIFMA Recommends Changes to FINRA Expungement Proposal

SIFMA recommended changes to a FINRA proposal to impose additional requirements for expunging customer dispute information. The FINRA proposal would amend the Code of Arbitration Procedure for Customer Disputes and the Code of Arbitration Procedure for Industry Disputes.

In a Comment Letter, SIFMA objected to limiting the basis for expungement to the provisions set forth in FINRA Rule 2080(b)(1) ("Obtaining an Order of Expungement of Customer Dispute Information from the Central Registration Depository (CRD) System") (which generally allows expungement if the customer claim is demonstrably false). SIFMA recommended that the proposal should allow for the expungement of inaccurate or misleading customer complaints, as currently permitted under Rule 2080(b)(2) (which generally allows expungement if FINRA finds it appropriate and there is no loss of customer protection).

SIFMA objected to requiring that expungement decisions be made by a unanimous panel rather than by majority and recommended that "the unanimity requirement be stricken from the proposal."

SIFMA objected to prohibiting the same panel that decides in favor of a firm and not a customer to also decide whether expungement of the complaint is appropriate. SIFMA recommended that "if a customer arbitration or on-behalf-of arbitration" is resolved without a hearing, by settlement or dismissal, then "the associated person should continue to be allowed to request an expungement-only hearing before the same panel from the customer arbitration." SIFMA also recommended that a "member firm should not be required to pay an additional member surcharge and process fee for a straight-in request."