FINRA Proposes Amendments to the Codes of Arbitration Procedure Regarding Requests to Expunge Customer Dispute Information

Through Financial Industry Regulatory Authority (FINRA) Regulatory Notice 17-42, FINRA proposes establishing a roster of arbitrators with certain training, backgrounds, or experience to handle requests to expunge customer dispute information. These arbitrators would decide expungement requests where the underlying customer-initiated arbitration is not resolved on the merits (e.g., settled) or the associated person files a separate claim requesting expungement of customer dispute information.

FINRA also proposes additional changes to the expungement process, such as changes to the timeframe in which an associated person can seek expungement of the customer dispute information, as well as unanimous consent of a three-person panel of arbitrators to grant expungement.

This is one piece of a larger series of initiatives FINRA is considering related to the expungement process. Comments are requested. The comment period expires February 5, 2018.

FINRA Board Accused of Conflicts of Interest

As reported in InvestmentNews, the Public Investors Arbitration Bar Association (PIABA) issued a report asserting that certain “public governors” on the Financial Industry Regulatory Authority’s (FINRA) 24-person board serve on too many corporate boards and/or have connections to Wall Street such that they cannot represent the publicly effectively and face conflicts of interest.

FINRA is a self-regulatory organization which oversees thousands of broker-dealers on behalf of the Securities and Exchange Commission (SEC). It has 13 public governors, 10 industry governors and one seat for its CEO. The PIABA report notes that, under FINRA’s by-laws, its public governors shall not have any material business relationship with a broker or dealer or other self-regulatory organization.

PIABA states that, instead of bringing a customer-oriented view to the table, FINRA’s public governors “often provide additional representation for security industry constituencies.” PIABA also critiques the selection of public governors with ties to the security industry. It states, “In many instances FINRA’s public governors join the board after long careers in the securities industry. . . . Although some academics and former regulators do serve on FINRA’s board as public governors, the board only infrequently includes persons primarily identified as investor protection advocates. This absence is troubling for an organization that publicly characterizes itself as dedicated to investor protection.”

InvestmentNews also reports that a FINRA spokesperson defended the FINRA board and its public governors, noting that “Each governor, regardless of his or her affiliation or classification, is responsible for serving in an unbiased and objective manner, and voting on matters for the good of the investors, industry and marketplace.”