SEC Approves FINRA Rule 2081 Regarding Prohibited Conditions Relating to Expungement of Customer Dispute Information

Friday, August 1, 2014

By notice issued Monday July 28, 2014, the SEC approved FINRA Rule 2081 (Prohibited Conditions Relating to Expungement of Customer Dispute Information) to prohibit member firms and associated persons from conditioning settlement of a dispute with a customer on, or to otherwise compensate the customer for, the customer’s agreement to consent to, or not oppose, the request to expunge such customer dispute information from the Central Registration Depository (CRD).

This is the latest step in what has been a longstanding FINRA concern about the practice of firms and associated persons conditioning settlement agreements for the purpose of obtaining expungement relief and, thereby, removing information from CRD that could be useful to investors.  In approving the rule change the SEC concluded that it is “a constructive step to help assure that the expungement of customer dispute information is an extraordinary remedy that is permitted only in the appropriate narrow circumstances contemplated by FINRA rules.”

The CRD contains a variety of licensing and registration information, including disciplinary information about registered personnel.  Information accessible by the public through FINRA’s BrokerCheck comes from the CRD system.

The rule is effective immediately.

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