State securities regulators are worrying that Finra’s efforts to preserve the disciplinary records of advisors will force those advisors to go to court seeking expungements.
Finra has proposed to make it more difficult for brokers to get disciplinary actions removed through arbitration. That has worried observers, who say more brokers will likely bypass Finra rules altogether and head directly to court for relief.
Finra isn’t currently proposing to deny access to courts, but both the North American Securities Administrators Association and the SEC’s Office of the Investor Advocate want Finra to move in that direction.
“We don’t want anyone bypassing the system,” said Joseph Borg, president of the NASAA and director of the Alabama Securities Commission.
Finra has specific rules its arbitrators are supposed to follow in granting expungements, which courts don’t have to follow.
That’s why the expungement process “doesn’t lend itself to a court,” Borg said.
NASAA and Finra jointly run the BrokerCheck disciplinary reporting system.
Likewise, the SEC’s Office of the Investor Advocate said in a February comment letter to Finra that it would not want to see brokers shop around for relief from outside forums. “We recommend Finra evaluate … ways to prevent brokers from going outside the [proposed] enhanced expungement” process, wrote Rick Fleming, the agency’s investor advocate, and Tracey McNeil, SEC ombudsman.
“If you make [expungements] harder, people will just go to court,” agreed Jeff Riffer, a lawyer at Elkins Kalt Weintraub Reuben Gartside in Los Angeles, who’s handled expungement cases for brokers.
It’s unclear, though, if Finra could really keep reps out of the courthouse.