On September 25, 2017, FINRA updated its Notice to Arbitrators and Parties on Expanded Expungement Guidance, previously issued in September 2015, to provide further clarity regarding the expungement process. This updated Notice, which was similar to previous guidance, addressed requests for expungement prior to the conclusion of an underlying arbitration. FINRA stated in clear terms that a broker may not file a request for expungement of customer dispute information arising from an underlying customer arbitration until the underlying customer arbitration has concluded. Toward this end, the Notice states that the Director will deny the FINRA forum as to the second expungement-only case to ensure that the underlying customer arbitration is resolved before any subsequent request to expunge that customer dispute is considered.
In issuing this Notice regarding dual arbitrations, FINRA has determined that it would be inappropriate to allow a request for expungement to proceed before the underlying customer arbitration has been resolved because the expungement request would be premature. Denying the forum for the second expungement-only case will prevent inconsistent results, ensure that the forum operates efficiently, and protect the accuracy of information contained in CRD and disseminated through Brokercheck. While this guidance only specifically addresses pending arbitrations, it will be interesting to see whether the Director, in practice, denies the arbitration forum for expungement-only claims concerning pending customer complaints, which may raise some of the same concerns as pending arbitrations.
The updated Notice also reiterates prior expungement guidance, which includes:
- Expungement is an extraordinary remedy that should be recommended only under appropriate circumstances.
- Arbitrators serve an important role in determining whether to recommend expungement and should ensure that they have all of the information necessary to make an informed and appropriate recommendation on expungement.
- The importance of allowing customers and their counsel to participate in the expungement hearing in settled cases if they wish.
- In expungement-only cases, arbitrators should order the brokers to provide a copy of their Statement of Claim to the customer(s) involved in the underlying dispute sought to be expunged.
- Arbitrators should request and carefully review the broker’s BrokerCheck Report when considering whether expungement is appropriate.
- A broker may not make a second expungement request when the first request has been denied.
- FINRA Rules 12805 and 13805 require arbitrators to provide a written explanation of the reasons for finding that one or more of the Rule 2080 grounds for expungement apply to the facts of the case before them.
- Arbitrators should consider whether the party seeking expungement contributed to the settlement and whether the settlement was conditioned on expungement (which is prohibited by FINRA Rule 2081).