Effective October 16, 2023, FINRA adopted amendments to its Codes of Arbitration Procedure (Codes) to modify the process relating to requests to expunge customer dispute information in the FINRA Dispute Resolution Services (DRS) arbitration forum. FINRA operates the Central Registration Depository (CRD), and customer dispute information maintained in CRD is reported through Forms U4 and U5.
FINRA Rules 12800 and 12805 specify the circumstances under which expungement of customer dispute information from CRD is appropriate. Additionally, FINRA Rule 13805 governs expungement requests filed by an associated person separate from a customer arbitration (also known as straight-in requests). According to Regulatory Notice 23-12, the amendments to the Codes require an associated person seeking expungement of customer dispute information to comply with the requirements of Rules 12805 (expungement requests in a customer arbitration), 12800(d) (expungement requests in a simplified customer arbitration) or 13805 (straight-in requests).
Expungement Requests Filed by an Associated Person Named in a Customer Arbitration Under Rule 12805
The amendments to Rule 12805 set forth the method, timing, and required contents of expungement requests filed during a customer arbitration by an associated person. The amendments provide that an associated person shall not file a request for expungement of customer dispute information if: (1) a panel held a hearing to consider the merits of the associated person’s request for expungement of the same customer dispute information; or (2) a court of competent jurisdiction previously denied the associated person’s request to expunge the same customer dispute information. If the associated person does not request expungement of the customer dispute information associated with the customer’s statement of claim during the customer arbitration, the associated person forfeits the opportunity to seek expungement of the same customer dispute information in any subsequent proceeding.
Further, if an associated person seeking expungement is named as a party in the customer’s Statement of Claim, the request must be included in the answer or a separate pleading requesting expungement. If the expungement request is filed with the Statement of Answer, it must be filed within 45 days of receipt of the Claimant’s Statement of Claim. If the expungement request is styled as a separate pleading, the request must be filed no later than 60 days before the first scheduled hearing. If the associated person seeking expungement files a separate pleading requesting expungement after the 60-day deadline, they must first file a motion pursuant to Rule 12503 requesting an extension. Finally, a request arising under Rule 12805 must include the following: (1) the applicable filing fee under the Customer Code; (2) the CRD number of the party requesting expungement; (3) each CRD occurrence number that is the subject of the request; (4) the case name and docket number associated with the customer dispute information; and (5) an explanation of whether expungement of the same customer dispute information was (i) previously requested and, if so (ii) how it was decided.
Expungement Requests Filed by an Associated Person Not Named in a Customer Arbitration Under Rule 12805
Prior to the amendments, the Code did not specifically address expungement requests made by a party named in a customer arbitration on behalf of an unnamed person. The amendments to Rule 12805 permit a party to the customer arbitration to file an on-behalf-of request (requesting party) during the customer arbitration that seeks to expunge customer dispute information associated with the customer’s statement of claim, provided the unnamed person consents in writing to the request and the request is eligible for arbitration under Rule 12805. The amendments to Rule 12805 permit a party to the customer arbitration to file an on-behalf-of request (requesting party) during the customer arbitration that seeks to expunge customer dispute information associated with the customer’s statement of claim, provided the unnamed person consents in writing to the request and the request is eligible for arbitration under Rule 12805. See Attachment C to Regulatory Notice 23-12.
Expungement Requests During Simplified Customer Arbitrations Under Rule 12800
In a simplified customer arbitration, if a named associated person or party on behalf of an unnamed person does not submit a request for expungement, the associated person or unnamed person may file a straight-in request, provided the straight-in request is not barred under Rule 13805(a)(2). If a named associated person files an expungement request during the simplified customer arbitration, the request must be included in the Statement of Answer or a separate pleading requesting expungement. If the associated person requests expungement in a separate pleading, the request must be filed within 30 days after the date FINRA notifies the parties of the appointment of the arbitrator. The requirements for a party to file an on-behalf-of request during a simplified customer arbitration are the same as the requirements for a named associated person filing an expungement request during a simplified customer arbitration, as outlined in § 1 of the memorandum.
Filing a Straight-in Request Under Rule 13805
An associated person requesting expungement of customer dispute information as a straight-in request under the Industry Code must file a statement of claim in accordance with Rule 13302 against the member firm at which the person was associated at the time the customer dispute arose. The requirement that an associated person file a straight-in request against the member firm at which the person was associated at the time the customer dispute arose is intended to help ensure that there is a connection between the respondent firm and the subject matter of the expungement request. If the associated person does not name a respondent firm with the requisite connection, the Director is authorized to deny use of the arbitration forum for the request. If the associated person files and then withdraws or does not pursue the request for expungement, the panel shall deny the expungement request with prejudice. The required contents of a straight-in request are the same as those outlined in § 1 of this memorandum.
The amendments require that the associated person serve all customers whose customer arbitrations, civil litigations or customer complaints are the subject of the expungement request with a copy of the statement of claim requesting expungement and any answer within 10 days of filing. The associated person must provide a current address for the customer, or the expungement request will be considered deficient and will not be served.
If an associated person is seeking to expunge in a straight-in request customer dispute information associated with a customer arbitration or civil litigation, the associated person must file the straight-in request within two years after the close of the customer arbitration or civil litigation. If an associated person is seeking to expunge a customer complaint in a straight-in request when there is no customer arbitration or civil litigation associated with the customer complaint, the associated person must file the straight-in request within three years after the customer complaint was initially reported to CRD.
We encourage all FINRA associated person to review Regulatory Notice 23-12 in its entirety, as well as the associated attachments and guidance to fully understand the new amendments. Associated persons should also specifically make note of the new temporal guidelines outlined in the amendments, as these changes represent a large departure from the previous regulatory regime surrounding the expungement process.