FINRA Regulatory Notice 23-12 introduces a comprehensive set of amendments to the Codes of Arbitration Procedure, specifically addressing the expungement of customer dispute information. This notice is designed to enhance the integrity and transparency of the expungement process within FINRA’s Dispute Resolution Services (DRS) arbitration forum. The changes are aimed at ensuring that the information available to regulators, firms, and the public is accurate and reliable, thus maintaining trust in the financial industry’s regulatory framework.
Purpose of the Notice
The primary purpose of Regulatory Notice 23-12 is to refine and improve the expungement process for customer dispute information. This includes implementing strict requirements for filing expungement requests, establishing a specialized roster of arbitrators with enhanced training, and involving state securities regulators more actively in the expungement hearings. These changes are intended to address concerns about the current process, which has been criticized for inconsistencies and potential abuses.
Importance of Understanding the Notice
Understanding Regulatory Notice 23-12 is crucial for financial professionals, firms, and regulators. It outlines new procedures and requirements that must be followed to ensure a fair and transparent expungement process. Compliance with these updates is essential to maintaining the integrity of FINRA’s records, which are relied upon by investors, regulatory bodies, and financial institutions.
Background
Explanation of FINRA
The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization that oversees brokerage firms and their registered representatives. FINRA’s mission is to protect investors and ensure the integrity of the securities markets by enforcing rules that promote fair and honest practices. FINRA operates under the supervision of the Securities and Exchange Commission (SEC) and plays a critical role in maintaining market integrity and investor confidence.
History of FINRA Regulatory Notices
FINRA issues regulatory notices to provide guidance, announce rule changes, and inform members of important regulatory updates. These notices are essential tools for maintaining transparency and compliance within the securities industry. They help ensure that all participants are aware of their obligations and the standards they must meet to operate within the regulatory framework established by FINRA and the SEC.
Reason for Issuing Regulatory Notice 23-12
Regulatory Notice 23-12 was issued in response to ongoing concerns about the effectiveness and fairness of the current expungement process for customer dispute information. The amendments aim to address these concerns by introducing more stringent requirements and greater oversight. This ensures that expungement requests are thoroughly reviewed and that the process is not subject to manipulation or abuse.
Key Points
Summary of Regulatory Notice 23-12
Regulatory Notice 23-12 outlines significant amendments to the Codes of Arbitration Procedure, specifically targeting the expungement of customer dispute information. These changes apply to expungement requests filed during customer arbitrations, simplified arbitrations, and straight-in requests filed separately from customer arbitrations. The amendments are designed to enhance the fairness and transparency of the expungement process.
Key Changes or Updates
- Special Arbitrator Roster: The notice requires that straight-in expungement requests be decided by a three-person panel randomly selected from a roster of experienced public arbitrators with enhanced training. This roster, known as the Special Arbitrator Roster, ensures that expungement requests are reviewed by arbitrators with the appropriate expertise and training.
- Prohibition of Arbitrator Changes: Parties involved in a straight-in expungement request cannot agree to fewer than three arbitrators, strike any of the selected arbitrators, stipulate to an arbitrator’s removal, or stipulate to the use of pre-selected arbitrators. This measure is intended to prevent parties from manipulating the composition of the arbitration panel.
- State Securities Regulators’ Participation: The amendments require notifications to state securities regulators of all expungement requests. Regulators are provided with a mechanism to attend and participate in expungement hearings for straight-in requests. This ensures that regulators have a voice in the expungement process and can provide their perspective on the appropriateness of expungement requests.
- Filing Time Limits: The notice imposes strict time limits on the filing of straight-in expungement requests. These limits are designed to ensure that expungement requests are filed in a timely manner and that the process does not become drawn out unnecessarily.
- Enhanced Hearing Requirements: The amendments codify and update best practices for expungement hearings, including requirements for the expungement hearing process. This includes facilitating customer attendance and participation, establishing additional requirements for expungement hearings, and codifying the panel’s ability to request any evidence relevant to the expungement request.
Implications for Firms and Individuals
The changes introduced by Regulatory Notice 23-12 have significant implications for both firms and individual brokers. Firms must ensure that their expungement procedures are updated to comply with the new requirements, and individual brokers must be aware of the stricter standards and procedural requirements. Failure to comply with these new rules can result in penalties and damage to professional reputations.
Guidance for Firms
Steps Firms Should Take to Comply with the Notice
- Review and Update Procedures: Firms must thoroughly review their current expungement request procedures and update them to comply with the new requirements outlined in Regulatory Notice 23-12. This includes ensuring that all expungement requests are handled according to the new rules and timelines.
- Train Staff: It is essential that compliance officers, legal teams, and other relevant staff are trained on the new rules and procedures. This training should cover the specifics of the amendments and ensure that staff understand their roles and responsibilities in the expungement process.
- Notify Affected Parties: Firms should inform brokers and advisors about the changes introduced by Regulatory Notice 23-12 and their responsibilities under the new rules. Clear communication is vital to ensure that all parties are aware of their obligations and the steps they need to take to comply.
Best Practices for Implementing the Changes
- Maintain Detailed Records: Firms should keep comprehensive records of all expungement requests and related communications. This includes documentation of the request, the evidence presented, and the decision-making process. Detailed records are essential for ensuring transparency and accountability.
- Enhance Communication: Firms should foster clear and open communication with brokers, advisors, and affected customers regarding expungement procedures. Keeping all parties informed helps to prevent misunderstandings and ensures that the process runs smoothly.
- Collaborate with Legal Counsel: Firms should work closely with legal counsel to navigate complex expungement cases and ensure compliance with the new requirements. Legal professionals can provide valuable guidance and support throughout the expungement process.
Potential Consequences for Non-Compliance
Non-compliance with the new expungement procedures can result in significant penalties, including fines and disciplinary actions from FINRA. Additionally, failure to adhere to the new rules can damage a firm’s reputation and erode trust with clients and regulators. Firms must take the necessary steps to ensure full compliance with Regulatory Notice 23-12 to avoid these consequences.
Guidance for Individuals
How the Notice Affects Individual Brokers and Advisors
Regulatory Notice 23-12 imposes stricter requirements on brokers and advisors seeking expungement. These individuals must now adhere to enhanced procedural requirements and present comprehensive evidence to support their expungement requests. Understanding and complying with these new standards is essential for maintaining a clean and accurate record.
Actions Individuals Should Take to Comply
- Educate Themselves: Brokers and advisors should familiarize themselves with the new expungement rules and procedures introduced by Regulatory Notice 23-12. Staying informed about these changes is crucial for compliance and professional integrity.
- Seek Legal Assistance: Given the complexity of the new expungement requirements, brokers and advisors should consider working with legal counsel to ensure proper filing and handling of expungement requests. Legal professionals can provide valuable guidance and help navigate the new procedures.
- Prepare Comprehensive Evidence: Brokers and advisors must gather and organize all necessary evidence to support their expungement requests. This includes documentation, witness statements, and any other relevant information that demonstrates the inaccuracy or defamatory nature of the information on their record.
Importance of Understanding Their Responsibilities
Understanding and adhering to the new expungement requirements is crucial for brokers and advisors. A clean and accurate record directly impacts career opportunities and professional reputation. Compliance with Regulatory Notice 23-12 ensures that brokers and advisors maintain their credibility and trustworthiness in the eyes of clients and regulators.
Key Questions Answered
What is FINRA Regulatory Notice 23-12?
Regulatory Notice 23-12 details amendments to the Codes of Arbitration Procedure to enhance the process of expunging customer dispute information. The amendments introduce new requirements for filing expungement requests, establish a specialized roster of arbitrators, and involve state securities regulators more actively in the expungement process.
What is the purpose of this notice?
The purpose of Regulatory Notice 23-12 is to refine the expungement process to ensure accurate and reliable records, prevent abuses, and enhance transparency. The changes are designed to address concerns about the current process and improve the overall integrity of FINRA’s records.
What are the key changes introduced in this notice?
Key changes include:
- Special Arbitrator Roster: Expungement requests must be decided by a three-person panel from a roster of experienced public arbitrators with enhanced training.
- Prohibition of Arbitrator Changes: Parties cannot reduce the number of arbitrators or agree to the removal or substitution of arbitrators selected by the list selection algorithm.
- State Securities Regulators’ Participation: Regulators are notified of expungement requests and can attend and participate in hearings.
- Filing Time Limits: Strict time limits are imposed on filing expungement requests.
- Enhanced Hearing Requirements: Codified best practices for expungement hearings, including requirements for customer attendance and participation and panel’s ability to request relevant evidence.
How will this notice affect my business or investments?
For businesses, the notice requires firms to adhere to stricter expungement procedures, ensuring fair and transparent handling of records. For investments, the notice ensures more reliable and accurate broker records, enhancing investor confidence and trust in the financial markets.
Who is affected by this notice?
The notice affects financial firms, brokers, advisors, and state securities regulators. Firms must update their procedures and train staff, while brokers and advisors must comply with new filing and evidence requirements. State regulators are given a more active role in the expungement process.
What is the deadline for compliance with this notice?
The amendments introduced by Regulatory Notice 23-12 became effective on October 16, 2023. Firms and individuals must comply with the new requirements from this date forward.
What are the penalties for non-compliance with this notice?
Penalties for non-compliance include fines, disciplinary actions from FINRA, and potential damage to professional reputation and client trust. Firms and individuals must take the necessary steps to ensure full compliance with the new expungement procedures.
How can I ensure that my firm is complying with this notice?
To ensure compliance, firms should:
- Review and Update Procedures: Thoroughly review and update expungement request procedures to align with the new requirements.
- Train Staff: Provide comprehensive training to compliance officers, legal teams, and other relevant staff.
- Maintain Detailed Records: Keep comprehensive records of all expungement requests and related communications.
- Collaborate with Legal Counsel: Work closely with legal counsel to navigate complex cases and ensure compliance.
Are there any exemptions or exceptions to this notice?
The notice specifies detailed procedural requirements, and requests not meeting these standards can result in ineligibility for arbitration. It is essential for firms and individuals to thoroughly understand and adhere to these requirements to avoid any potential issues.
How does this notice align with other regulatory requirements?
This notice builds on existing FINRA rules and procedures, enhancing the integrity and accuracy of broker records in alignment with broader regulatory standards. The amendments ensure that the expungement process is consistent with FINRA’s overall mission of protecting investors and maintaining fair and honest securities markets.
By adhering to the new requirements and best practices outlined in Regulatory Notice 23-12, firms and individuals can navigate the expungement process effectively, maintain compliance, and uphold the integrity of the financial industry’s records.
The Role of a FINRA Expungement Attorney
Expert Guidance and Advice
A FINRA expungement attorney concentrates on the expungement process and provides guidance and advice tailored to each case’s unique circumstances. They understand the intricate rules and procedures set forth by FINRA and can help stockbrokers navigate the complexities involved.
Case Assessment and Strategy Development
An experienced attorney will thoroughly assess the stockbroker’s case, including reviewing the disclosure and any supporting documentation. Based on this assessment, the attorney will develop a strategic plan to approach the expungement request effectively, ensuring that all necessary criteria are met.
Preparation of Expungement Request
Preparing an expungement request requires meticulous attention to detail and a comprehensive understanding of the evidence. A FINRA expungement attorney will prepare all necessary documents, including the formal expungement request, detailed explanations, and supporting evidence.
Representation in Arbitration Hearings
The arbitration hearing is key to the expungement process, where the stockbroker must present their case before a FINRA arbitration panel. An attorney will represent the stockbroker during these hearings, presenting arguments, submitting evidence, and addressing any questions or concerns the panel raises.
Gathering and Presenting Evidence
One of the most critical aspects of a successful expungement request is the quality of evidence presented. A FINRA expungement attorney will assist in gathering all relevant evidence, such as witness statements, documents, and expert testimony, to support the claim that the disclosure is factually inaccurate or defamatory.
Understanding the Burden of Proof
The stockbroker bears the burden of proof in an expungement request. This means they must demonstrate that the information is false or misleading. An experienced attorney will help prepare a robust case that meets this burden of proof, increasing the likelihood of a successful outcome.
Dealing with Opposition
During the expungement process, opposition may arise from former employers or other parties who dispute the stockbroker’s claim. A FINRA expungement attorney is skilled in handling such opposition, presenting counterarguments, and negotiating settlements where appropriate.
The Expungement Process
Step 1: Filing the Expungement Request
The attorney will begin by filing a formal request for expungement through a statement of claim with FINRA, detailing the reasons for seeking removal of the information from the stockbroker’s record.
Step 2: Review by the Arbitration Panel
After filing the request, an arbitration panel will review the case to determine whether it meets the criteria for expungement. The attorney will ensure that all procedural requirements are met and that the case is presented effectively.
Step 3: Arbitration Hearing
If the panel finds merit in the request, a hearing will be scheduled. The attorney will prepare the stockbroker for the hearing, organize the evidence, and present the case to the panel. This includes addressing any questions or concerns raised during the hearing.
Step 4: Decision and Approval
Following the hearing, the arbitration panel will make a decision based on the evidence presented. If the panel approves the expungement, FINRA will update the stockbroker’s record accordingly. The attorney will ensure that the expunged information is properly removed and that the stockbroker’s BrokerCheck record is updated.
Benefits of Hiring a FINRA Expungement Attorney
Expertise in FINRA Rules and Procedures
A FINRA expungement attorney has knowledge of FINRA’s rules and procedures, ensuring that the expungement request is handled correctly and efficiently.
Increased Chances of Success
An attorney significantly increases the chances of a successful expungement by providing expert guidance, gathering compelling evidence, and representing the stockbroker in hearings.
Peace of Mind
Navigating the expungement process can be stressful and time-consuming. Hiring an attorney allows stockbrokers to focus on their careers while the attorney handles the complexities of the expungement request.
Professional Representation
An attorney provides professional representation, ensuring that the stockbroker’s case is presented in the best possible light. This includes addressing any legal challenges and advocating on behalf of the stockbroker throughout the process.
A FINRA expungement attorney plays a vital role in helping stockbrokers remove false or misleading disclosures from their BrokerCheck records. An attorney significantly increases the likelihood of a successful expungement by providing guidance, preparing a robust case, and representing the stockbroker in arbitration hearings. For stockbrokers seeking to protect their professional reputation and career opportunities, hiring a FINRA expungement attorney is an essential step in navigating the complex expungement process.