FINRA Withdraws Proposed Expungement Rule Changes It Has Worked On For Four Years After Pushback From SEC

Ulmer & Berne LLP

Sorry for the flurry of posts this week, but the development Chris writes about here was not expected, and it is important enough that I decided to push it out today, on the eve of a three-day weekend. – Alan

Today FINRA announced in a press release here that it has withdrawn from SEC consideration its proposed rule changes regarding the expungement process.  The proposed rule changes were dramatic and included the creation of a special roster of arbitrators to decide expungement cases, and the appointment of arbitrators to expungement cases (rather than allowing the parties to choose them through the ranking process), as mentioned in these prior posts.

FINRA also pushed out a new webpage today devoted solely to expungement.  It includes key statistic about the numbers of expungements granted, as well as the proposed rules that have now been tabled.  The website indicates that the SEC clearly took issue with the proposed changes, as it required FINRA to respond to comments on three separate occasions (according to the timeline on this new website).

This development is significant, to say the least.  FINRA has been working on these rule changes since 2017, when it published Regulatory Notice 17-42.  Now, four years later, it is not clear where FINRA goes from here.  FINRA describes the withdrawal as “temporary” and vows to keep working to improve the expungement process.  It is too early to declare victory on either side, although PIABA has already done so  and seems to think FINRA will revise the proposed changes to make them even more harsh on brokers.  That may be true, but it may not.

For now, let’s all just enjoy the holiday weekend.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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