A 2012 decision by a California appeals court ruled that brokers could have their records expunged under a principle of basic fairness, or equity, rather than under Finra rules. In 2017, another California appeals court upheld that principle, but ruled that a broker must first seek expungement of a regulatory action from Finra and the SEC.
If Finra tries to deny access to the courthouse, “people would go to court and argue that Finra can’t restrict their rights,” Riffer said.
It’s not known whether Finra will act on what the NASAA and the SEC’s Office of the Investor Advocate want. Finra is currently considering comments on its proposal, which is already controversial, and denying brokers access to courts would turn up the heat on its rule-making.
Observers don’t expect any imminent action on the proposal, and major changes would likely go out for further comment.