SEC Grants "Accelerated Approval" of FINRA Proposal on Expungement of Customer Complaint Information

The SEC granted "accelerated approval" of a FINRA rule proposal, as modified by "Amendments Nos. 1 and 2," to change the process relating to the expungement of customer dispute information. The rule changes would amend FINRA Rule 12000 Series ("Code of Arbitration Procedure for Customer Disputes") and FINRA Rule 13000 Series ("Code of Arbitration Procedure for Industry Disputes"). Under the proposal, including the rule amendments, FINRA would modify the expungement process of customer dispute information by:

• revising the procedures for, and contents of, expungement requests filed by (i) an associated person or party during an investment-related customer-initiated arbitration or (ii) an associated person separate from a customer arbitration (i.e., "straight-in requests");
• requiring establishment of (i) a roster of "experienced public arbitrators" to participate in a three-person panel to decide straight-in requests and (ii) procedural requirements for expungement hearings;
• modifying the FINRA "Notice to Arbitrators and Parties on Expanded Expungement Guidance";
• specifying procedures under the Customer Code regarding expungement requests of customer disputing information; and
• revising the Customer Codes to (i) set forth notification requirements to state securities regulators and customers of expungement requests and (ii) allow state securities regulators to participate in straight-in requests.

FINRA solicited further comments on Amendment No. 2, which "modified the proposed rule change to provide that an associated person would be precluded from filing a straight-in request if the customer dispute information involves the same conduct that was the basis of a final regulatory action taken by a securities regulator or SRO."