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FINRA’s Changes to the Expungement Rules won’t Stop Brokers from Winning

FINRA's Expungement rule changes won't stop brokers from winning their cases.Last year, FINRA moved closer to finalizing several proposed rule changes to the process available to financial advisors to seek expungement of customer complaint information from their BrokerCheck records. For years, FINRA has tried to limit the frequency that financial advisors win their expungement cases. Advocates of more stringent expungement rules cite a high success rate among those who seek expungement as evidence that financial advisors improperly clear their records at the expense of investors who are kept oblivious to their “checkered” pasts.

The changes made to the process up to this point haven’t “worked,” as financial advisors continue to win their expungement cases far more often than they lose. This success comes despite several previous changes to the expungement process designed to reduce the success rate including: an increase in fees to pursue expungement; ensuring three arbitrators (the individuals responsible for deciding to grant or deny expungement) hear expungement cases as opposed to one; mandatory arbitrator expungement training; guidance directed to FINRA arbitrators about the “extraordinary” nature of granting expungement; and a requirement to give customers formal notice of a financial advisor’s expungement attempt so the customer, and/or their counsel, may participate to oppose the effort.

FINRA added these measures in the face of its preexisting rule governing expungement, which already places a heavy burden squarely on the financial advisor to prove they deserve expungement to a FINRA arbitrator panel.

None of this, it seems, is enough. Under FINRA’s latest proposed rule changes, the following notable modifications to the process will likely take place:

  • Financial advisors will have no input on the three arbitrators selected to hear their expungement case—FINRA will randomly select them.
  • FINRA will notify state securities regulators about expungement attempts and invite them to participate in expungement proceedings to oppose them.
  • The three appointed arbitrators must unanimously agree to award expungement.
  • FINRA will implement additional measures designed to promote customer participation in expungement proceedings to oppose a financial advisor’s expungement effort.
  • FINRA will place more stringent time limitations on when financial advisors may seek expungement.

Contrary to popular belief, these proposed changes will do little to change the expungement success rate.

Through its attempts to apply more stringent rules to the expungement process, FINRA and expungement reform advocates, continue to attribute the expungement success rate to a combination of (1) arbitrators’ ignorance in their understanding of how to properly apply FINRA’s expungement standards, and (2) expungement rules that are too lax. This logic has been the central justification behind every previous amendment to the expungement process, which have all failed to reduce the expungement success rate.

The continually overlooked cause for the expungement success rate is the broad standard for what constitutes a “customer complaint” that is required to be disclosed on BrokerCheck. FINRA requires BrokerCheck disclosure of essentially any written complaint involving, “allegations of theft or misappropriation of funds or securities.” This obviously includes a formal lawsuit that involves a financial advisor. But it also includes informal written complaints set out in emails, letters, text messages, or even tweets. FINRA provides a specific example on its website where a tweet from a customer who alleges a financial advisor sold them unsuitable securities would constitute a reportable event worthy of appearing on BrokerCheck.

A complaint may never amount to formal litigation; a complaint could be meritless; the financial advisor’s firm could deny the complaint entirely or settle it for nuisance value without the financial advisor’s input. And in each instance, the complaint would appear on the financial advisor’s BrokerCheck record.

To be clear: FINRA is correct to apply a broad standard for what constitutes a customer complaint that warrants disclosure on a financial advisor’s BrokerCheck record. But these broad reporting requirements (which continue to broaden) have created an influx of financial advisors who have customer complaints on their records that legitimately meet FINRA’s expungement standards.

Predictably, when these financial advisors pursue expungement, they win far more often than they lose. FINRA arbitrators—who are overwhelmingly well-versed on the FINRA Rules—understand this dynamic better than anyone. But across the breadth of negative commentary about the expungement process over the last decade, few (if any), it seems, are willing to consider FINRA’s broad BrokerCheck reporting rules as the source of (or at least a substantial contributing factor to) the high success rate in expungement cases.

Ultimately, if you treat nearly every formal or informal expression of discontent about a financial advisor as a complaint that requires BrokerCheck disclosure, you must acknowledge that a substantial proportion of those customer complaints might be legitimately meritless. It should not be surprising when the financial advisors who have their records tarnished from a meritless complaint take exception to an attack on their reputation, pursue expungement (taking on the substantial financial burden and risk of doing so in the process), and win. Successful expungement cases therefore do not confirm lax expungement rules, or arbitrator ignorance. To the contrary, successful expungement cases more likely confirm a deluge of customer complaint information on BrokerCheck that legitimately meet the expungement standards, which is a possibility FINRA wants desperately to ignore.

If FINRA maintains broad BrokerCheck reporting rules, financial advisors (who can afford it) will continue to overcome FINRA’s obstacles to earning expungement because they will continue legitimately meeting the expungement standard. This is the tradeoff that comes with the requirement to disclose essentially every written criticism of a financial advisor that relates to securities on BrokerCheck. FINRA should simply acknowledge this. Instead, it continues trying to reduce the success rate of expungement cases (to cure what it undoubtedly views as a bad optic) by complicating the process. It hasn’t worked before, and it won’t work this time.

1. See: SR-FINRA-2022-024, “Proposed Rule Change to Amend the Codes of Arbitration Procedure to Modify the Current Process relating to the Expungement of Customer Dispute Information,” available here:

see also: FINRA’s Letter to the SEC RE SR-FINRA-2022-024, dated November 10, 2022, available here: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/

2. See Public Investors Advocate Bar Association (“PIABA”) Expungement Study, dated May 2021, available here:

3. See FINRA Regulatory Notice 20-25, available here:

4. Id.

5. See Expungement Training (Module 16), the mandatory nature of which is referenced here:

6. See “Notice to Arbitrators on Expanded Expungement Guidance,” available here:

7. Id.

8. See FINRA Rule 2080: Obtaining an Order of Expungement or Customer Dispute Information from the Central Registration Depository (CRD) System, available here:

9. See Note 1 supra FINRA’s Letter to the SEC RE SR-FINRA-2022-024, dated November 10, 2022, at pages 1-2.

10. See e.g. IN article by Mark Schoeff Jr., “Revised Finra expungement proposal gains support of pervious critics,” August 4, 2022:

11. See FINRA Rule 4530(a)(1)(B) and 4530(e): Reporting Requirements, found here:

12. See FINRA Rule 4530: Frequently Asked Questions at Section 2.1 found here: