On October 16, 2013 FINRA provided enhanced guidance to arbitrators considering expungement on broker’s U-5 Forms.
The guidance followed concern that a large number of brokers were obtaining expungement of customer claims from the U-5 Forms. FINRA noted that from 2009-2013, FINRA expunged customer dispose from 838 U5s, and indicated that this was low compared to the 17,635 customer disputes filed in that same period. The guidance is meant to remind arbitrators that “expungement is an extraordinary remedy that should be granted only under appropriate circumstances. Information should be expunged only when it has no meaningful investor protection or regulatory value.”
Further, FINRA noted that “on making these determinations, arbitrators should consider the importance of maintaining the integrity of the information in the CRD system” and that “arbitrators should ensure that they have all of the information necessary to make an informed and appropriate recommendation on expungement.” This new guidance, although not materially changing existing procedures for expungement, suggests that arbitrators will take an extremely cautious and restrained approach in reviewing expungement applications.