- Rising Tide: The Urgent Call For Advisor Succession Planning
- Why RIAs Should Consider Outsourced Chief Compliance Officers
- FINRA Crackdown — Outside Business Activities
- Georgia Advisor Restores Public Record With Termination Expungement
- Is FINRA’s small firm governor election process truly fair and transparent?
In August, AdvisorLaw made a public comment concerning FINRA’s latest effort to undermine the expungement procedure. We found that FINRA’s proposed rule change not only denies fundamental rights to financial advisors and wealth managers — it also makes removing unfounded complaints from their public records even more challenging, even in warranted cases. Take a look at our comment here,
Last week, one day before the SEC was to respond to its proposal, FINRA amended its request to the SEC. We were hoping these changes would water down the proposal, but FINRA has decided to take it even further.
If you’ve been following along, the last proposal suggested the following reforms:
- FINRA itself selecting each panel of arbitrators;
- state regulators participating in cases and attending hearings;
- requiring a (criminal-level) unanimous decision from the three-person arbitration panel; and
- imposing a strict window of time, outside of which, even false disclosures are rendered ineligible for expungement.
Now, FINRA has ADDED language requesting to:
- involve investors in all aspects of the prehearing conference and expungement hearing;
- dictate how arbitrators interpret certain evidence; and
- take away the ability to even access the expungement forum in certain underlying arbitrations.
As you can imagine, these changes are receiving broad support from investor attorneys who make their living via nuisance settlements.
Back in September, the North American Securities Administrators Association (NASAA) wrote a harsh letter to FINRA, critiquing its proposal and claiming that it doesn’t go far enough. The Public Investors Advocate Bar Association (PIABA), a group of plaintiff lawyers who represent investors suing brokers, also got their two cents in — claiming that arbitrators in the FINRA-administered forum are “rubber stamping” expungement requests.
In reality, out of approximately 35,000 customer dispute disclosures in the CRD system, only 4% have been successfully expunged through arbitration (as of May 25, 2021). When you consider that all allegations made by customers are required to be reported and disclosed in the CRD, that’s a surprisingly low number. We know firsthand how many advisors have to deal with bad information on their public records in the form of customer complaints that are implausible, untrue, or entirely incorrect.
That’s why removing bad information from the CRD and BrokerCheck is so critical. It ensures the integrity of the CRD. As FINRA’s constant and increased overreach borderlines on unconstitutional, advisors and wealth managers with meritless or defamatory public disclosures in the form of customer complaints, regulatory violations, tax liens, criminal charges, or terminations must act now. There isn’t much time left before the SEC approves FINRA’s latest additions to its proposal. Contact AdvisorLaw as soon as possible for a complimentary consultation.
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- FINRA Crackdown — Outside Business Activities - September 7, 2023
- Georgia Advisor Restores Public Record With Termination Expungement - September 5, 2023
- Is FINRA’s small firm governor election process truly fair and transparent? - August 29, 2023