SEC Approves New Rules by FINRA

April 23rd 2023

by Owen Harnett

Summary of Keypoints

  • The SEC approved FINRA’s new rules governing the expungement of customer dispute information from BrokerCheck and the Central Registration Depository, introducing significant changes to FINRA arbitration once the 158-page rule is implemented.
  • The new rules impose stricter procedural requirements, including limits on arbitrator selection, use of a FINRA-curated arbitrator roster, a requirement for unanimous decisions by a three-member panel, regulator participation, increased forum costs, and shorter timeframes to seek expungement.
  • These changes apply only to customer dispute disclosures and do not affect expungement of termination disclosures reported on Form U5.
  • Customer dispute expungement remains possible, but whether a case should be brought in FINRA arbitration will now require a detailed, case-by-case analysis based on the specific facts and circumstances.
  • HLBS Law states it has developed alternative forums for expungement that may address many of the new FINRA limitations and may be recommended depending on an advisor’s situation.

SEC approves proposed rules by FINRA for expunging customer dispute information from BrokerCheck and the CRD

Once the new 158-page rule is implemented, sweeping changes will be brought to FINRA arbitration that will limit or altogether prohibit advisors from seeking expungement of customer dispute disclosures published on their Central Registration Depository and BrokerCheck records. This change will require a case-by-case analysis on whether a customer dispute expungement request should be brought to FINRA’s forum. It is important to note that these changes do not impact expungement of termination disclosures from a Form U5.

  1. Here is a brief summary of some of the changes:a. New procedural requirements imposed during the underlying arbitration that may impact an advisor’s ability to bring an expungement request.b. Parties can no longer rank arbitrators in expungement claims.c. The arbitrators are assigned from a FINRA-curated roster.d. Decisions on customer dispute expungement must be unanimous by a three-member arbitration panel.e. Service of the customer is done by the director of FINRA.f. Regulators of which you are licensed are now served with notice of expungement and may participate in the expungement process.g. Increased forum costs.h. Shorter time period to bring expungement requests.
  2. What does this mean for my customer dispute disclosure?

Customer dispute disclosure expungement is still possible in arbitration. These changes are going to limit which cases can or should be brought to FINRA arbitration and this is going to depend on your individual facts and circumstances of the disclosure.  

3. So What Now?

Depending on the circumstances, HLBS Law may recommend an alternative option to FINRA arbitration once these rules are implemented. HLBS Law has worked out an alternate forum for expungement claims that may alleviate many of the above concerns. The future is bright for financial advisors seeking expungement of false customer dispute disclosures, give us a call today for a free consultation.

Owen Harnett
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