In the face of mounting criticism from investor attorneys, the Financial Industry Regulatory Authority announced Friday it was temporarily withdrawing its plan to reform the expungement system which allows registered reps to erase customer complaints and misconduct from their BrokerCheck records.

Finra had proposed creating a special roster of arbitrators that would hear broker requests to clean their records. But with the number of expungement cases soaring, critics—especially the Public Investors Advocate Bar Association (PIABA)—lobbied the Securities and Exchange Commission to seek greater reforms. The SEC must approve all Finra rule changes.

The lobbying campaign worked. “Following consultations with the SEC staff, we temporarily withdrew from SEC consideration our rule filing establishing specialized arbitration panels for expungement requests so that we can further consider whether modifications to the filing are appropriate,” Finra spokesperson Michelle Ong said in a statement.

Finra’s withdrawal of its expungement proposal is “a great day for investor advocacy,” PIABA president David Meyer said in an interview. “PIABA worked extremely hard over the past six months to convince the new SEC that the expungement process was broken and Finra’s proposed changes were not going to fix the problem.”

A PIABA review found the broker practice of using expungement arbitration to erase all evidence of their wrongdoing has exploded more than 1,000% since 2019, and is “rubber-stamped” by arbitration panels 90% of the time.

At a press conference earlier last month, PIABA urged the SEC to create an independent Investor advocate empowered to oppose expungement requests.

Finra said it will continue to take steps to reform the existing expungement system while working to create a new proposal.

“Protecting the integrity of the information in the CRD system and BrokerCheck is critical to our mission of investor protection,” Ong said. “Finra is committed to limiting the expungement process so that it operates as intended—as an extraordinary remedy, only appropriate in limited circumstances when the CRD information is clearly inaccurate.”

Finra said it believes it was important “to vigorously pursue” a revision of the existing expungement process and to create an independent Dispute Resolution Task Force to establish an arbitration panel consisting of specially trained arbitrators.

“These arbitrators would decide proceedings where brokers seek to expunge customer dispute information separately from the arbitration of the underlying dispute, which typically do not involve the customer who raised the dispute,” Ong said.

The rule filing would also provide notification to state securities regulators of expungement requests and create several additional safeguards for ensuring that information in the CRD system that’s disclosed through BrokerCheck is accurate and complete, she added.

Ong said Finra plans to continue its collaboration with the North American Securities Administrators Association to support a redesign of the current expungement process.

“This redesign program involves multi-stakeholder solutions requiring more fundamental changes to the expungement process,” she said.

Finra also said it plans to release data, statistics and a discussion paper that analyzes the expungement of broker information, before convening discussion groups.

To aid in the mission, Ong said Finra will work with a variety of stakeholders including investment advisors and financial intermediaries.

“We welcome any information they can provide to more fully inform a holistic view of the issues around expungement throughout the financial services industry,” she said.