Expunge

Expunge is the act of eliminating a formal customer complaint lodged against a securities broker from Financial Industry Regulatory Authority's (FINRA) public records. These records on brokers are held in the Central Registration Depository (CRD) system as a way to monitor professional conduct of brokers. A broker who feels that an unfair complaint has been registered in CRD against him or her may take action to have the black mark expunged. Any broker would want to have a clean record to help carry out his or her business affairs.

Customer complaints submitted to FINRA about bad broker conduct are entered into the CRD system, placed in FINRA's public BrokerCheck website, and recorded on the broker's Form U-4. Perhaps unfairly, complaints are disclosed regardless of whether it has been determined that the broker has actually committed any wrongdoing. Even if a complaint is later dropped or FINRA arbitrators conclude that a complaint lacks merit, the complaint will still appear in BrokerCheck. It will remain there unless the broker successfully gets FINRA to expunge the complaint.

The process to expunge a complaint is governed by FINRA Rules 12805 and 2080. FINRA calls expungement an "extraordinary measure," so a broker starts off by staring at a high wall to climb. The broker must hold an in-person or telephonic session with an arbitration panel to plead his case; this panel then must agree to pass on the case to another set of adjudicators, and if they concur the broker then must return to FINRA to seek removal of the undesired record. The entire process can take up to 10 months.

As of February 2018, FINRA had proposed amendments on the table for expungement. These amendments, if passed, will make it even more difficult for a complaint to be expunged. Among the new rules will be in-person only hearings (no hearings by teleconference); payment of a fee of at least $1,450; time limit of one year to bring an expungement request; requirement of a unanimous decision as opposed to the current majority decision; and convincing the arbitration panel that a customer complaint "has no investor protection or regulatory value." The vagueness of this description only adds to the height of the wall.

In FINRA's defense, brokers chasing money for a living have demonstrated that they do not always act ethically. Potential long-lasting (or even permanent) entries in BrokerCheck that would reflect poorly on them serve as deterrents to unprofessional conduct. This is perhaps the reason that the expungement process for a broker is already daunting, and FINRA aims to make it even more so.