FINRA grants 90% of brokers’ requests to erase customer complaints
A study, which analyzed 2,506 “straight-in” expungement awards—cases where brokers seek the removal of customer complaints against their own firms—found that brokerage firms did not oppose their brokers’ expungement requests in 92% of the cases. The report suggests that the lack of opposition is likely due to brokerage firms’ own interest in removing customer complaints from their records.
The FINRA arbitration process has come under sharp scrutiny in a new report by The PIABA Foundation and Public Investors Advocate Bar Association (PIABA), revealing that 90% of broker requests to erase customer complaints were granted between January 2019 and August 2023. This alarming statistic persists despite a promising new rule from FINRA that allows state securities regulators to participate in these arbitration cases.
Jason Doss, Founding Director of the PIABA Foundation and report co-author, stated: “We welcome state securities regulators’ participation to the arbitration process because it is their regulatory information that is being erased. We worked hard to clearly identify the root of the problem and now it is time to work even harder to achieve the goal of expungements being granted only in extraordinary circumstances.”
The study, which analyzed 2,506 “straight-in” expungement awards—cases where brokers seek the removal of customer complaints against their own firms—found that brokerage firms did not oppose their brokers’ expungement requests in 92% of the cases. The report suggests that the lack of opposition is likely due to brokerage firms’ own interest in removing customer complaints from their records.
FINRA new rule offers hope
However, the introduction of FINRA’s new rule, which allows state securities regulators to participate in these arbitration cases, could be a game-changer. The rule is aimed at making the expungement process more transparent and accountable by allowing these regulators to present evidence against expungement when appropriate.
Joseph Borg, Former Director of the Alabama Securities Commission, said: “The Alabama Securities Commission is honored to be partnering with The PIABA Foundation and PIABA on our new training program for state regulators. FINRA arbitration time windows and deadlines can be short, so it’s important for states to be coordinated and hit the ground running to be as effective as possible. We’re excited to get to work.”
The PIABA Foundation is partnering with the Alabama Securities Commission to offer a training program for state securities regulators, aimed at equipping them to effectively participate in FINRA arbitrations. This training program, along with FINRA’s new rule, could signify a pivotal moment in the long-standing issue of high expungement rates in the industry.
Yet, challenges remain. State securities regulators face hurdles such as limited resources, short deadlines to notify FINRA, and a potential lack of familiarity with the arbitration process. The report suggests that states coordinating their efforts could mitigate these challenges, achieve 100% participation in straight-in expungement arbitrations, and thus promote a more equitable and transparent system.
Richard Lewins, President of The PIABA Foundation, concluded: “Since 2013, The PIABA Foundation and PIABA have shined a light on issues with FINRA’s expungement system. The new rules are the result of the hard work of the attorneys over the years who contributed to this effort, as well as FINRA’s responsiveness. We applaud FINRA for taking constructive criticism in the spirit of cooperation in our common goal of serving investors.”
As the industry grapples with these deeply entrenched issues, the new FINRA rule and the accompanying training program stand as hopeful steps toward greater accountability and transparency in the expungement process.