When a customer makes a complaint to a FINRA-registered firm or representative, FINRA rules dictate that the complaint be recorded in its Central Registration Depository (CRD) system as a customer dispute. Certain information from those disputes is also published on BrokerCheck, where any person can search and view the public records of all member firms and registered representatives.
Ideally, only legitimate complaints would be reported so that the reporting of such information would accurately reflect advisors’ and firms’ conduct. However, due to the broad nature of FINRA’s reporting requirements, false and inaccurate customer disputes are often reported to the CRD and BrokerCheck, as well. As a result, the integrity of the CRD and BrokerCheck is compromised, and the information conveyed on those platforms becomes unreliable.
Unless expungement of customer dispute information is sought, all customer complaints remain on representatives’ permanent, CRD and BrokerCheck records, regardless of the merit of each claim. With a handful of exceptions, FINRA members can seek to have inaccurate information removed from the CRD system through FINRA’s dispute resolution arbitration system.
In order to obtain an award recommending expungement of customer dispute information from the CRD system, an arbitrator or panel must find that any of the standards of FINRA’s Rule 2080 are met:
– the claim or allegation is factually impossible;
– the claim or allegation is clearly erroneous;
– the claim or allegation is false; and/or
– the registered person had no involvement with the alleged activity.
While a representative who is a party to a FINRA arbitration for a customer dispute may seek expungement during those proceedings, doing so is inadvisable, as a recommendation for expungement requires a unanimous decision of a three-person arbitration panel, and the representative has no say in selecting the arbitrators.
Seeking expungement in a separate hearing before FINRA Dispute Resolution is more advantageous, as the representative and their counsel may study data and guidelines and participate in the selection of the sole arbitrator conducting the hearing.
AdvisorLaw’s services were created exclusively for financial advisors—contact us for a free consultation about our Disclosure Expungement services.