Worried About An Enforcement Action Due to Compliance Issues? TAKE THE ASSESSMENT
Menu
Call
Contact
Blog

What to Know About FINRA’s Expungement Rule Changes

Advisors work hard, building trust and credibility with clients over years of dedicated service. However, even baseless complaints create black marks on registration records that undermine reputations and stall careers.

Under old guidelines, FINRA arbitration provided relief – expunging unfounded disclosures from advisors’ CRD reports. But concerned by potential abuse, regulators recently enacted profoundly limiting amendments around scrubbing complaint information.

Navigating updated protocols is no small feat. Subtle changes create tightly enforced traps, eliminating expungement options. For advisors hoping to wipe clean unjust stains on their BrokerCheck profiles, what should you know about FINRA’s new expungement landscape?

As counsel exclusively representing the advisory community in arbitration and compliance matters for over a decade, let’s decode the tighter guidelines now in effect.

Why FINRA Stepped In On Expungement Policy

At its core, FINRA aims to protect investors by overseeing broker conduct and providing regulatory transparency.

A key way they shine light on advisor histories is the CRD system aggregating registration and disclosure information like customer complaints, arbitration cases, settlements, and terminations.

This data not only informs hiring and licensing decisions but also powers BrokerCheck to help retail investors conduct due diligence.

However, FINRA grew concerned over how loosely arbitration panels agreed to expunge unfounded complaints. Some advisors discovered that filing “straight-in” requests against member firms they were affiliated with at the time of the dispute could convince friendly arbitrators to clean records. State regulators balked over seemingly unjustified scrubbing.

So, after a lengthy comment period, FINRA implemented amendments effective October 2023, intending to restrict inappropriate expungements. But the changes also narrowed paths for advisors with genuinely erroneous disclosures. Navigating tighter protocols requires attorney guidance upfront.

Overview of Amended Expungement Rules Now In Force

While FINRA Rule 2080 always dictated strict grounds for expungement, enforcement was inconsistent. Updates to Rules 12805 and 13805 address this through stricter expungement requirements around:

  • Timeframes – Advisors now only have 2-3 years after a complaint filing or arbitration closing to request expungement, disqualifying a majority of previous filings.
  • Panel Composition – Previously, single arbitrators often granted requests. Under changes, three-member panels are randomly selected from strict roster pools, and unanimity is required.
  • Regulator Inclusion – FINRA now informs state authorities of proceedings and enables their participation, bringing potentially skeptical voices to panels deliberating relief.
  • Standards of Relief – Prior panels loosely interpreted grounds for expungement. New guidance trains arbitrators to only grant if complaints are factually impossible, clearly erroneous, demonstrably false, or when advisors were uninvolved in the alleged misconduct.

On their face, changes intended to address lax historic approvals may seem sensible. However, in practice, they create towering hurdles for advisors hoping to rightfully clear their records.

Why Tighter Rules Disproportionately Harm Advisors

Industry observers argue that updated expungement requirements swing the pendulum too far. Quickly closing windows paired with unpredictable panel selections and compulsory consensus rulings means even advisors fully in the right likely won’t achieve record clarity under modern protocols.

Moreover, some fear vindictive former clients can now easily weaponize the system. Even past complaints clearly without merit permanently tarnish advisors’ BrokerCheck profiles, given panel composition changes. With no channel for explaining contexts around disclosures, public perceptions suffer irreparable damage.

Critics also highlight how regulations failed to address other core transparency issues. For example, claimant attorneys craft artfully ambiguous complaints, avoiding defamation while still sullying advisor names. Many question why tax liens or bankruptcies from an advisor’s youth remain indefinitely searchable when far more relevant misconduct findings can be removed.

Overlooked Protocols Spell Lost Expungement Eligibility

Between radically compressed time windows, unpredictable three-member panels, and required unanimity, successfully navigating the updated expungement process is extraordinarily unlikely without experienced legal advocacy.

Subtle amended rule oversights like:

  • Missing strict 60-day pleading deadlines
  • Failing to argue “clearly erroneous” standards
  • Not requesting panels from a strict roster

can permanently eliminate record-cleaning options. Even attorneys unfamiliar with protocols may forever forfeit client rights.

For advisors serious about restoring reputations from past complaints, accept no substitutes for practitioners with proven expungement expertise. Document disputes on records likely can’t ever be deleted again without deft navigation of opaque new guidelines. Risking your firm’s future on dubious counsel or trying arbitration alone, given the raised stakes, is frankly unwise at this point.

There’s Still Hope – With the Right Guidance

While FINRA’s updated expungement rules undoubtedly created thornier paths to clearing records, options still exist for advisors wrongfully living under past allegations’ shadows. As attorneys have been supporting the advisory community for decades, we refuse narratives claiming reputations are permanently tainted.

Through relentlessly studying rule changes and representing client rights in hundreds of arbitration cases annually, My RIA Lawyer continues to achieve record clarifications once deemed impossible.

Rather than hopelessly accept compliance infractions from years past indefinitely sullying your profile, partner with a professional hyper-focused on seeking justice. Together, we can help confidently put rightful explanations around registration disclosures to FINRA, regulators, firms, and clients.

Contact us today for a consultation to discuss reviving your career.

Author Bio

Leila Shaver is the Founder of My RIA Lawyer, a law firm that provides compliance and legal consulting for financial institutions. With extensive experience as a securities attorney and compliance expert, she has served as Chief Compliance Officer and General Counsel to RIAs, BDs, and TAMPs with billions in assets under management.

Leila understands the challenges RIAs face and is committed to helping RIAs streamline their processes, mitigate risks, and ensure compliance with regulatory requirements. She received her Juris Doctor from Atlanta’s John Marshall Law School and is a West Georgia Young Lawyers’ Association member. Leila has received numerous accolades for her work, including the Carroll County Bar Association’s Outstanding Young Lawyer Award in 2017.

LinkedIn | State Bar Association | Avvo | Google