FINRA Limits Advisors’ Right to Arbitration & Disclosure Expungement

FINRA continues to limit advisors’ right to be heard regarding their role in customer disclosures published to their CRD and BrokerCheck records. Broker-dealers are required to report any customer dispute to FINRA, whether or not it has been found to have any merit. The advisor need not be named in the complaint and has no opportunity prior to publication to comment or provide information regarding the underlying events or the veracity of the disclosure language. 

FINRA Restricts Arbitrators’ Authority

In the past, advisors have been provided with a forum, whereby a neutral arbitrator could determine whether a disclosure met FINRA’s stated standards for expungement and order the expungement of meritless disclosures from the CRD and BrokerCheck.

Pressure to limit the arbitrator’s authority or altogether eliminate an advisor’s opportunity to be heard continues to be applied by outside groups. These groups have their own motivations and act out of their own interest, absent any concern regarding customer protection or professional oversight. They strive to make it increasingly more difficult, or even impossible, for an advisor to remove an unwarranted disclosure. 

Rather than embrace its regulatory and professional oversight role, FINRA continues to bend to the whims of such groups. This was recently illustrated, when FINRA, through its own rulemaking procedure, implemented a substantial increase in the fees for brokers seeking expungement. FINRA continues to propose and mandate administrative functions above and beyond what is reasonable, thereby placing the accessibility of expunging a meritless disclosure out or reach for most brokers. These barriers are in direct conflict with FINRA’s policies regarding customer dispute disclosures. 

Without accurate information, the FINRA CRD system is, at best, unreliable and, at worst, untrustworthy and defamatory — hardly the outcome sought when investing taxpayer dollars in FINRA’s reporting system. False and erroneous disclosures on BrokerCheck serve no purpose for the investing public, regulators, or employers that FINRA purports to serve. 

Clearing Your Name on BrokerCheck and the CRD

There is no indication that FINRA will either ease up on further restricting brokers from their right to correct the record or strive to fulfill its obligation to ensure that BrokerCheck contains accurate and meaningful information for those who rely upon it. Increasing restrictions could leave brokers forced to live with false and defamatory language on their permanent records, with no opportunity for recourse. This would lead to damaging and unintended consequences for the brokers while further diminishing the value of a system designed to protect the investing public. 

The public’s right to know must extend to a right to being provided accurate information by the regulators that it funds. The only check on that right to accurate and meaningful information is for the accused to have the right to be heard regarding the matter and for a qualified neutral to be allowed to rule on it without undue influence.  

If you have a false, factually impossible, or clearly erroneous disclosure on your BrokerCheck report, do not wait — outside forces continue to work to limit and eliminate your right to be heard — act now.

May 18th, 2021

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