What is FINRA arbitration?

FINRA arbitration is a method of resolving disputes between investors and brokerage firms or financial advisors outside the court system. It involves a neutral third party, an arbitrator, who reviews the case and makes a binding decision.

Why choose arbitration over litigation?

Arbitration is typically faster, less formal, and more cost-effective than litigation. It also provides a final resolution to disputes, with limited grounds for appeal. Most relationships with financial advisors are formalized by entering into a contract which contains a dispute resolution clause. Nationally, most dispute resolution clauses provide for FINRA arbitration.

Who can file a FINRA arbitration claim?

Investors, brokerage firms, and financial advisors can file a FINRA arbitration claim if they have a dispute related to securities or investment activities. FINRA arbitration is normally the forum for disputes among registered persons, brokerage firms and the public customer clients of the firms.

How do I start the FINRA arbitration process?

To start the arbitration process, Bakhtiari & Harrison will file a Statement of Claim with FINRA, detailing the nature of the dispute, the parties involved, and the relief sought.

What is a Statement of Claim?

A Statement of Claim is a written document submitted by the claimant outlining the facts of the dispute, legal claims, and the desired outcome.

What happens after filing the Statement of Claim?

After filing, the respondent has 45 days to answer the Statement of Claim. The answer must address the claims and may include counterclaims or other relief sought.

What fees are involved in FINRA arbitration?

Fees include filing fees, hearing session fees, and possibly member surcharges or process fees, depending on the specifics of the case.

Can I represent myself in FINRA arbitration?

Yes, you can represent yourself, but many choose to hire an attorney with experience in securities arbitration due to the complexity of the process. Investors and industry professionals who choose to represent themselves do so at a substantial disadvantage, Wall Street firms typically retain experienced professional counsel to represent their interests.

How are arbitrators selected?

Arbitrators are selected through the Neutral List Selection System (NLSS), which provides a list of potential arbitrators. Both parties rank and strike names to agree on a panel.

What qualifications do FINRA arbitrators have?

FINRA arbitrators include attorneys, accountants, financial professionals, and public members who have undergone training and meet FINRA’s qualification standards.

How long does the arbitration process take?

The process typically takes 12-18 months from filing to the final award, but this can vary based on case complexity and scheduling. Preference may be given to investors that are seriously ill or elderly.

What is a prehearing conference?

A prehearing conference is a meeting between the parties and the arbitrators to discuss procedural issues, set a schedule, and address preliminary matters including final FINRA arbitration hearing dates.

What is discovery in arbitration?

Discovery is the exchange of documents and information between the parties to prepare for the hearing. It is more limited than in litigation.

What happens during the arbitration hearing?

During the hearing, both sides present evidence, call witnesses, and make arguments. The arbitrators then deliberate and render a decision.

Is the arbitration hearing open to the public?

No, arbitration hearings are private and confidential. Only the parties, their representatives, and the arbitrators may attend.

Can I settle my case before the hearing?

Yes, parties can settle at any time before the arbitrators render a decision, often through negotiation or mediation.

What is mediation in the context of FINRA arbitration?

Mediation is a voluntary process where a neutral mediator helps the parties negotiate a settlement. It is separate from arbitration and non-binding.

What happens if I lose in arbitration?

If you lose, the arbitrator’s decision is final and binding. There are limited grounds for challenging the award in court.

Can I appeal an arbitration decision?

Generally, you cannot appeal an arbitration decision. However, you can seek to vacate the award on very narrow grounds, such as arbitrator misconduct.

What types of disputes are resolved through FINRA arbitration?

Disputes include claims of fraud, breach of fiduciary duty, negligence, breach of contract, and other issues related to securities and investments.

How are damages determined in arbitration?

Damages are determined based on the evidence presented, including financial records, expert testimony, and the specifics of the case.

Can arbitrators award attorney’s fees?

Arbitrators can award attorney’s fees if provided for by law, contract, or if both parties request it.

How do I enforce an arbitration award?

An arbitration award can be enforced in court through a confirmation process, making it a judgment that can be collected.

What is expungement in FINRA arbitration?

Expungement is the process of removing information from a broker’s record on the Central Registration Depository (CRD) system. It is only granted under specific conditions.

What are the grounds for vacating an arbitration award?

Grounds for vacating an award include arbitrator bias, fraud, corruption, or misconduct, as well as exceeding their powers.

Are arbitration awards public?

Yes, arbitration awards are published on FINRA’s website, providing transparency and access to past decisions.

What is the role of the Office of Dispute Resolution?

The Office of Dispute Resolution administers arbitration and mediation cases, ensuring that the process runs smoothly and efficiently.

What is a Simplified Arbitration?

Simplified Arbitration is for cases involving claims of $50,000 or less, allowing for a quicker and less expensive resolution without a hearing.

Can I request an expedited hearing?

Yes, in certain circumstances, such as elderly or seriously ill parties, you can request an expedited hearing.

What is the role of an arbitrator?

An arbitrator acts as a neutral decision-maker, reviewing evidence, hearing testimony, and issuing a binding decision on the dispute.

How do I prepare for an arbitration hearing?

Preparation involves gathering evidence, preparing witnesses, and developing a clear case strategy to present to the arbitrators.

What types of evidence are admissible in arbitration?

Evidence can include documents, emails, financial records, expert reports, and witness testimony, subject to the arbitrators’ discretion.

Can I request documents from the other party?

Yes, through the discovery process, you can request relevant documents and information from the other party to support your case.

How does FINRA handle conflicts of interest with arbitrators?

FINRA requires arbitrators to disclose any potential conflicts of interest, and parties can object to arbitrators they believe are biased.

What happens if a party does not comply with discovery?

If a party does not comply, the other party can file a motion to compel, asking the arbitrators to order compliance and possibly impose sanctions.

What is a motion in arbitration?

A motion is a formal request for the arbitrators to make a ruling on a specific issue, such as compelling discovery or dismissing a claim.

Can I request interim relief in arbitration?

Yes, you can request interim relief, such as temporary restraining orders or injunctions, to preserve the status quo pending the final decision.

How are hearing locations determined?

Hearing locations are typically determined by the location of the claimant unless both parties agree to a different venue.

What is a telephonic or virtual hearing?

Telephonic or virtual hearings are conducted via phone or video conference, allowing parties to participate remotely.

How are arbitration awards paid?

Awards are typically paid by the losing party within 30 days of the decision, unless otherwise specified by the arbitrators.

What if the losing party does not pay the award?

If the losing party does not pay, you can seek enforcement through the courts, turning the award into a legally enforceable judgment.

Are there any limits on the types of claims I can bring in arbitration?

FINRA arbitration covers a broad range of claims related to securities, but there are some statutory and regulatory limits on certain types of claims.

Can I bring a class action in FINRA arbitration?

No, class actions are not permitted in FINRA arbitration. However, you can join other claimants in a single arbitration if the claims are similar.

What is the role of expert witnesses in arbitration?

Expert witnesses can provide specialized knowledge and opinions to help explain complex financial issues to the arbitrators.

How are hearing dates scheduled?

Hearing dates are scheduled based on availability of the parties and arbitrators, with consideration for the complexity of the case.

Can I request a different arbitrator if I believe one is biased?

Yes, you can challenge an arbitrator if you believe they have a conflict of interest or bias that affects their impartiality.

What is a “chairperson” in a FINRA arbitration panel?

The chairperson is the lead arbitrator who manages the procedural aspects of the case and ensures the hearing runs smoothly.

How does FINRA ensure fairness in arbitration?

FINRA has rules and procedures in place to ensure a fair and impartial process, including arbitrator training and disclosure requirements.

How do I learn more about the FINRA arbitration process?

For more information, you can visit FINRA’s website, contact their Office of Dispute Resolution, or consult with experienced attorneys like those at Bakhtiari & Harrison.

How can Bakhtiari & Harrison help with FINRA arbitration?

Bakhtiari & Harrison can assist with filing claims, responding, selecting arbitrators, discovery, hearings, and ensuring the best possible outcome through skilled representation and strategic advice.

Critical FAQs For Advisors Concerning FINRA Expungement

Expungement is the process of removing certain information from a financial professional’s regulatory record. It is a critical but often misunderstood aspect of the Financial Industry Regulatory Authority (FINRA)’s procedures. FINRA expungement, particularly under Rule 2080, has specific rules and strict criteria. In recent years, FINRA has implemented significant changes to make the expungement process more rigorous, reflecting a commitment to maintain the integrity of brokers’ records and protect investors.

The following are frequent questions financial professionals ask about FINRA expungement, along with detailed answers that incorporate the latest updates and practical guidance.

Table of Contents

What information is eligible for expungement under FINRA Rule 2080?

Answer: FINRA Rule 2080 applies only to expunging customer dispute information from the Central Registration Depository (CRD) system. The CRD is FINRA’s central database that holds registration and licensing details about brokers and firms, including any disclosures of customer complaints, arbitration claims, or civil lawsuits involving customers. In other words, the types of records you can attempt to expunge under Rule 2080 are those related to customer disputes – for example, a complaint a client filed against you, allegations made in a FINRA arbitration or lawsuit, or any investment-related customer claim reported on your record.

Other kinds of information in CRD are not eligible for expungement via this process. This means you cannot use Rule 2080 to erase things like regulatory actions taken against you, criminal charges or convictions, or financial disclosures such as bankruptcies or liens. FINRA deliberately limits the expungement remedy to customer dispute information to ensure it’s used narrowly – essentially to clear an associated person’s record of customer allegations that are factually incorrect or without merit, rather than to wipe out other aspects of their history.

If you are looking to “clean up” your record, the expungement path will only help with customer dispute entries. For instance, if a client’s complaint was clearly erroneous or baseless, that disclosure is exactly the kind of item expungement is designed to address. Removing such information can help keep your professional record fair and accurate. Notably, when something is expunged from CRD, it is also removed from BrokerCheck (the public report available to investors). Thus, a successful expungement will eliminate the customer dispute from both the industry database and the report that investors see – a result that can be crucial for maintaining your professional reputation.

After the 2023 rule changes, do you still need a court order to expunge a record?

Answer: Yes. A court’s confirmation or order is still required to expunge customer dispute information, even after FINRA’s 2023 rule changes. FINRA Rule 2080 has always required that an arbitration award recommending expungement be reviewed and approved by a court of competent jurisdiction before the information can be removed from CRD. The recent amendments (effective October 16, 2023) did not change that fundamental step – you cannot bypass the court process.

This court confirmation acts as an important safeguard. It means that beyond the arbitration panel’s recommendation, a judge must agree that the expungement is warranted. FINRA relies on this extra layer of oversight to ensure expungements are not granted too freely. For practitioners, this means you should factor in the time and effort to get a court order after your arbitration victory. Even if FINRA streamlines its own procedures, Rule 2080 still requires a judge’s sign-off to make an expungement official.

What does FINRA Rule 2080 require for expungement?

Answer: FINRA Rule 2080 lays out two key requirements for anyone (a broker or firm) seeking to expunge customer dispute information from CRD:

Obtain a Court Order or Confirmation: You must get a court of competent jurisdiction to either directly order the expungement of the information or confirm an arbitration award that contains an expungement recommendation. In short, an arbitrator’s say-so isn’t enough – a judge has to sign off.
Name FINRA as a Party (Unless Waived): When you go to court to request that order, FINRA must be named as an additional party to the case and be officially served with all the filings. This gives FINRA the opportunity to participate in the case (for example, to oppose the expungement if it has concerns). However, FINRA can waive the requirement to be named as a party. If certain conditions are met (which we’ll discuss later), FINRA may agree that it doesn’t need to be involved in the court case, and you won’t have to name them in your court filing.

These requirements make it clear that expungement isn’t automatic or purely private. There is both judicial oversight (the court’s involvement) and regulatory oversight (FINRA’s involvement) in the process. For a financial professional seeking expungement, this means that even after winning in arbitration, you need to navigate a court proceeding and keep FINRA in the loop. The option of obtaining a waiver from FINRA can simplify the court step, but unless such a waiver is granted, you must include FINRA as a party when asking a court to confirm an expungement.

How can a broker initiate an expungement request through FINRA arbitration?

Answer: A financial professional has two primary avenues for seeking expungement through FINRA’s arbitration forum:

During an ongoing customer arbitration: If a customer has filed a FINRA arbitration claim against you, you can request an expungement as part of that arbitration. You’ll need to follow FINRA’s process (for example, making the expungement request on the record and presenting evidence for the expungement criteria). If the arbitrators agree that the complaint meets the strict standards for expungement, they will include a recommendation for expungement in their final award.
Through a separate “straight-in” expungement arbitration: If no customer case is active (for instance, the client’s complaint was never formally arbitrated or has already closed), you can file a dedicated arbitration claim solely to seek expungement. Often called a straight-in request, this is essentially an arbitration you initiate against your (former) brokerage firm at the time of the dispute, with the customer not directly involved as a party.

Under FINRA’s enhanced rules effective October 2023, the expungement arbitration process has new safeguards. For example, straight-in requests are now decided by a panel of three public arbitrators appointed from a special roster, and their decision must be unanimous to recommend expungement. FINRA also set strict filing deadlines: a straight-in request must be filed within two years after the customer’s arbitration or court case closes, or within three years of the initial customer complaint if no formal case was filed. Additionally, brokers seeking expungement must personally appear at the expungement hearing (in person or via video), and the customer is notified and allowed to participate in the hearing.

In summary, you can pursue expungement either within a customer’s arbitration case or through a separate arbitration dedicated to expungement. Whichever route you take, it’s critical to adhere to FINRA’s procedures—make the request in the proper timeframe, follow the hearing requirements, and be prepared to demonstrate that one of the narrow grounds for expungement is satisfied. A successful outcome in the arbitration phase (i.e. obtaining an expungement recommendation from the arbitrators) sets the stage for the required court confirmation to actually wipe the information from your record.

When can FINRA waive the requirement to be named in a court case for expungement?

Answer: FINRA will consider waiving its required involvement in the court process only if the arbitration award meets very strict conditions. Specifically, the award must be based on one or more of the following three narrow grounds (the only grounds allowed for expungement under FINRA rules):

The allegation or claim is factually impossible or clearly erroneous.
The broker was not involved in the alleged investment-related misconduct or violation.
The claim or allegation is false.

In addition, the arbitration panel must have clearly indicated in the award which one of these grounds was satisfied and provided a brief explanation of the facts supporting that finding. If a three-person panel heard the case, all three arbitrators must have agreed (a unanimous decision) to grant the expungement.

If all these conditions are met, FINRA will typically grant a waiver of the Rule 2080 requirement. In practice, that means you would not have to name FINRA as a party when you go to court to confirm the expungement. (Of course, you only get this benefit if you request the waiver from FINRA – it isn’t automatic.)

What should you do after arbitrators grant an expungement in arbitration?

Answer: When arbitrators award expungement in your case, your next step is to get a court to confirm that expungement. You have two ways to approach the court stage:

Seek a FINRA waiver before going to court: If your arbitration award meets all of FINRA’s criteria, you can first ask FINRA to waive the requirement that it be named in the court case. To do this, you’ll submit an online Rule 2080 Waiver Request Form to FINRA (since March 2023, FINRA only accepts waiver requests through this online form). You need to attach a single PDF that includes a formal waiver request letter and all the key arbitration documents (the claim, the answer, any settlement, and the arbitration award). Once you’ve submitted the request online, you simply wait for FINRA’s decision on the waiver.
Proceed directly to court (with FINRA involved): If you choose not to seek a waiver, or if you suspect your case wouldn’t qualify for one, then you can go straight to court. You would file a petition in a court of competent jurisdiction to confirm the arbitration award and order the expungement. Under Rule 2080, you must name FINRA as a party in this court proceeding (since you aren’t getting a waiver) and formally serve FINRA with the court papers (we’ll discuss service details shortly). In this route, you’re asking the court to approve the expungement with FINRA involved from the start.

Most brokers opt to try the waiver first, since a granted waiver means they can handle the court step without FINRA in the mix. Regardless of the path you take, make sure all procedural steps are followed carefully. Missing a requirement (like failing to notify FINRA properly) can delay your expungement. It’s often advisable to consult an attorney to ensure your court filing is done correctly and that you’ve met all obligations under Rule 2080.

What is FINRA’s process after receiving a waiver request?

Answer: After you submit a Rule 2080 waiver request, FINRA staff will review your application and the arbitration award to determine if it meets FINRA’s criteria. FINRA will then send you a written decision:

If the waiver is granted: You will not be required to name FINRA as a party in your court confirmation case. In other words, FINRA is essentially saying, “we’re okay with this expungement moving forward without our involvement.” You can proceed to file your court petition to confirm the arbitration award and expunge the record without listing FINRA as a defendant.
If the waiver is denied: FINRA is indicating that it wants to be formally part of the court process (perhaps because it has concerns or simply wants the court to review the matter with FINRA present). A denial means you must comply with the original Rule 2080 requirement by naming FINRA as an additional party in your lawsuit to confirm the expungement. You’ll need to serve FINRA with the court papers (see the later question on serving FINRA) and give them an opportunity to respond in the court case. Don’t be discouraged by a denial – it doesn’t mean you won’t get your expungement. It simply means FINRA didn’t agree to step aside. The court can still grant your expungement if everything is in order, but now FINRA (and potentially state regulators) will have a chance to weigh in before the judge makes a decision.

Why might FINRA or state regulators intervene in a court expungement hearing?

Answer: FINRA – and state securities regulators – might choose to participate in a court proceeding to confirm an expungement as a safeguard for the investing public. When a broker asks a court to erase a customer dispute from the record, there are broader implications beyond that individual case. Investor protection and regulatory interests are at stake, because information on CRD/BrokerCheck is used by investors to evaluate brokers and by regulators to oversee the industry.

Without FINRA or a state stepping in, a judge might only hear the broker’s side (since often the customer who made the complaint isn’t involved in the court case). FINRA’s involvement ensures the court is aware of the industry rules and the public policy considerations around expungement. Similarly, a state regulator might intervene if they believe that expunging the record could harm public interests or if they want to support enforcement of the standards.

In short, FINRA and states serve as the voice of investor protection in these court proceedings. Their participation is meant to inform the court about why expungement standards are strict and to urge caution so that legitimately important information isn’t wiped away without scrutiny.

How do you serve FINRA with court papers if FINRA is named in the case?

Answer: If you have to name FINRA in your court case, you must serve the legal papers to FINRA’s registered agent for service of process. FINRA has a registered agent in every state where it does business. You can find the appropriate agent’s name and address on FINRA’s official website or through that state’s Secretary of State office.

Once identified, you should deliver your court documents (such as the summons and petition) to that agent following the required legal procedures in your jurisdiction. Serving FINRA’s agent is the same as serving FINRA itself. Be sure to follow all court rules for service – if service isn’t done correctly, it could delay your expungement or cause the court to dismiss your petition until proper service is completed.

Does FINRA get involved in every expungement court case?

Answer: Not necessarily. The Rule 2080 requirement to name FINRA in a court case is meant to give FINRA an opportunity to get involved if needed, but FINRA doesn’t automatically show up to contest every expungement. If an expungement request clearly meets all standards (especially if FINRA granted a waiver), FINRA often will not participate in the court proceeding at all. Even when FINRA is named in a case, it may choose to stay on the sidelines if it finds nothing problematic about the expungement.

In practice, FINRA intervenes only in the minority of cases – typically those where it sees a potential issue with the expungement that could affect investor protection or the integrity of the records. Otherwise, in routine cases, FINRA’s presence is more of a formality than an active battle.

When will FINRA decide to oppose an expungement confirmation in court?

Answer: FINRA will decide to actively oppose (fight) an expungement in court if it believes something about the case doesn’t meet FINRA’s standards or could undermine investor confidence. Some typical reasons include:

Procedural or rule-compliance problems: The arbitrators may not have followed all the required steps (for example, perhaps they didn’t hold a proper expungement hearing or didn’t explain their reasoning in the award), meaning the expungement award isn’t in line with FINRA’s rules.
Timing or eligibility issues: The expungement request might have been filed too late or in a way that violates FINRA’s time limits and guidelines, making it improper under the rules.
Investor protection concerns: FINRA might feel that wiping out this particular information would be against the public interest – for instance, if the record involves a pattern of serious complaints that investors and regulators would consider important to know.

When FINRA has such concerns, it will use its opportunity as a party to actively oppose the expungement. FINRA’s attorneys may file objections or appear at the court hearing to urge the judge not to confirm the arbitration award. (State regulators might also intervene for similar reasons, as discussed above.) The final decision rests with the court, but FINRA’s opposition signals to the judge that there are regulatory red flags to consider before any information is scrubbed from the record.

Key Takeaways Regarding FINRA Expungement

Expungement under FINRA Rule 2080 is an intentionally rigorous process. It’s designed to be granted only when a customer complaint or claim is truly unfounded or erroneous. The recent rule changes in 2023 have made the process even more stringent, adding specialized arbitrators, strict time limits, and greater oversight to ensure expungement remains an extraordinary remedy rather than a routine occurrence.

For financial professionals, the key to navigating expungement is preparation and adherence to the rules. Make sure to request expungement within the allowed time frames and follow all required arbitration procedures (including presenting compelling evidence for one of the narrow expungement grounds). If an arbitration panel recommends expungement, take advantage of the FINRA waiver process to streamline the court confirmation step when possible.

Always properly notify and involve FINRA (and state regulators, if needed) in the court process when required. A successful expungement can protect your reputation by clearing unjustified disclosures from your BrokerCheck record – but achieving that outcome requires patience, diligence, and strict compliance with the FINRA expungement framework. By understanding each step and the recent rule changes, you can approach the expungement process with confidence, improving your chances of a successful outcome.

For more information, contact Bakhtiari & Harrison.