Regulatory Notice 23-12

The Financial Industry Regulatory Authority, FINRA, has published a new Regulatory Notice 23-12 to implement final rule changes as regards the procedures for the expungement of dispute information from the FINRA Dispute Resolution Services (DRS) arbitration forum and from the Central Registration Depository (CRD), which is maintained by FINRA and contains information on registered securities and broker firms, as well as individuals who offer investing and financial advice services. The CRD is the primary source for FINRA’s Broker Check – an online platform – which allows investors to view information on registered firms such as complaints that may have been filed against them, enforcement actions, education, as well as licensing and professional certifications.
FINRA is now modifying a large number of rules pertaining to such expungement and corresponding process, depending on whether an expungement request is filed by an associated person during an investment-related, customer-initiated arbitration (customer arbitration), filed by a party to the customer arbitration on behalf of an associated person (on-behalf-of request), or filed by an associated person separately from a customer arbitration (straight-in request). The key changes include the following:
1. Special Arbitrator Roster: Straight-in requests will now be decided by a three-person panel randomly selected from a roster of experienced public arbitrators who have received enhanced expungement training.
2. Minimum Arbitrators: Parties involved in straight-in requests are prohibited from agreeing to fewer than three arbitrators to assess their expungement requests. They cannot strike selected arbitrators, stipulate to an arbitrator’s removal, or stipulate to the use of pre-selected arbitrators.
3. Notification to Regulators: Notifications will be sent to state securities regulators for all requests to expunge customer dispute information. State securities regulators are also provided with the opportunity to attend and participate in expungement hearings related to straight-in requests.
4. Strict Time Limits: There are now strict time limits imposed on the filing of straight-in requests.
5. Simplified Customer Arbitrations: Procedures for requesting expungement of customer dispute information during simplified customer arbitrations have been specified.
6. Best Practices Codification: The amendments codify and update the best practices outlined in the „Notice to Arbitrators and Parties on Expanded Expungement Guidance“ (Guidance) that applies to all expungement hearings. These practices include establishing additional requirements for expungement hearings, facilitating customer attendance and participation in all aspects of the expungement hearings, and codifying the panel’s ability to request any relevant evidence for the expungement request.
7. Unanimous Panel Agreement: A unanimous agreement of the panel is now required to issue an award containing expungement relief.
8. Procedural Requirements: Procedural requirements have been established for filing expungement requests, including on-behalf-of requests.
The amendments are scheduled to take effect on October 16, 2023.