Registered reps, arbitrators and broker-dealers are all blasting a Finra proposal that would make it much tougher for brokers to expunge customer complaints from disciplinary records.
Finra asked for comment last December on the plan, which would create a one-year limitation for expungement claims—ending the practice of removing old complaints.
The proposal would also mandate that reps request expungement during a customer arbitration. If a case is settled before a decision is made, then a separate expungement hearing would be required, to be heard by three attorney arbitrators with special training and experience standards.
In all cases, expungement would require a unanimous decision by three arbitrators, in contrast to a simple majority for non-expungement cases.
Additionally, brokers seeking to clean up their records would have to testify in person or via videoconference rather than by phone, and Finra would impose a minimum $1,425 filing fee to have an expungement case heard. (Currently, expungement cases filed by brokers, which usually do not ask for damages, incur the lowest minimum filing fee of $50.)
Comments on the Finra proposal were due Monday.
“The proposed rules would establish inconsistent adjudicatory standards and procedures applicable only to expungement applications, and would increase the cost and burden on registered representatives seeking to protect their reputations,” said the Securities Industry and Financial Markets Association (SIFMA) in a comment letter.
According to the association, Finra “does not offer any explanation or empirical evidence as to why expungements warrant a higher threshold than a multi-million-dollar customer or industry case.”
Brokers and arbitrators don’t like the plan, either.
Jay Higgenbotham, a Merrill Lynch rep in Birmingham, Ala., told Finra he had disclosures related to the failed bond funds at his former employer, Morgan Keegan, despite the fact that no clients named him in their complaints.