FINRA to Tighten Training and Standards for Expungement Arbitrators

After coming under pressure from the public and investor arbitration attorneys, FINRA recently announced that it will revise its training standards for its arbitrators to ensure that they are upholding its standards for expungement of advisor complaints from their Central Registration Depository.

The announcement followed an article in the New York Times that was critical of the rate of expungment of advisor records, and came just two days before an unflattering survey was released showing arbitrators granted advisors’ request for expungement in 90% of the cases in which it was requested during settlement talks with plaintiffs. The survey was conducted and published by the Public Investors Arbitration Bar Association, an industry trade group of attorneys representing investors in arbitration.

FINRA also indicated that it was reconsidering the rules and regulations around expungement, according to a statement in response to the PIABA study.

“In addition to the steps it is taking to provide additional guidance and training to arbitrators, FINRA is reviewing its rules and interpretations, and will consider changes to provide clarity as to what actions in connection with conditions on settlements violate conduct rules,” the regulator said.

The expungement process, outlined in FINRA Rule 2080, requires a broker to make a case before an arbitration panel, and if the expungement is granted, obtain a court order mandating the removal of a record from the CRD.

FINRA’s training for arbitrators on expungement currently includes an online training program and a supplemental course, both of which are required before an arbitrator is eligible to serve on a panel reviewing expungement requests. The expungement course is followed by a 10-question true-or-false examination.

The test, which is publicly available through registration on FINRA’s learning management system, asks basic questions such as whether arbitrators must explicitly write their reason for expungement in the award and whether “expungement standards balance the interest of public investors, regulators, and individuals in the brokerage community.”

Passing requires a score of at least 80%, according to FINRA’s website. There is no time limit.

Other efforts by FINRA to improve arbitrator training include an “Arbitrator Audio Workshop,” which would be available in November, and an article on expungement in the upcoming issue of the arbitrator newsletter, “The Neutral Corner.” It will also revise the expungement page on its website.

“PIABA’s study underlines and emphasizes serious concerns FINRA shares with respect to the expungement process,” the regulator said in a statement released in response to the survey. “As a result of these concerns, FINRA…is enhancing arbitrator training with added emphasis on the importance of the integrity of information in the CRD system.”