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Financial Industry Regulatory Authority (FINRA) Announces Intent to Revise Arbitration Guidelines in Wake of Criticism

Friday, December, 6, 2013


 

The Financial Industry Regulatory Authority (FINRA) has announced that it will review and revise its arbitrator guidelines and training in regards to the rules and procedures for granting of expungements.  The announcement comes after months of complaints from the public sector and advisor attorneys as well as an article in The New York Times that was very critical of the current lax standards.

 

A survey of arbitration cases conducted in November found that 90% of advisor’s requests for expungement during settlement talks with plaintiffs were granted.  This embarrassingly high number coupled with the Times’ critical article has prompted FINRA to reconsider its position and announced more stringent training and expungement requirements to come.

 

Currently, the FINRA rule on expungement requires a broker or advisor to make a case before an arbitration panel.  If the panel grants the expungement, it must get a court order that compels the Central Registration Depository to delete the record.  However, the requirements to sit on an Arbitration Panel for an expungement are currently an online training program and a supplemental course.  The online training culminates in a 10-question test with no time limit that covers the basic principles of expungement and requires just an 80% score to pass.              

 

FINRA has pledged to review and revise these requirements, as well as to increase member education through its newsletter and website.  There is a great deal of doubt among the public sector, however, as expungements are so clearly desirable for advisors and brokers accused of incompetence or illegal activities, who choose to settle these complaints rather than defend themselves – for whatever reason.  While there are certainly many legitimate situations where expungement would be advisable, more training in recognizing those situations more clearly is obviously needed.