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Broker complaint expungements to get FINRA attention

Consumers like to know that the products and services they are getting are top notch. That can be especially true if the money being spent is going toward investments intended to one day pay for something important like college or retirement. Providing that assurance is why certain organizations such as the Financial Industry Regulatory Authority exist.

As we have noted in previous posts for our California readers, FINRA, Wall Street's industry-funded, self-regulating body, has been criticized for not doing a better job of curbing stockbroker malpractice that leads to a need for litigation. One particular concern that was raised a few months ago was the ease with which brokers have been able to get customer complaints expunged from their records as part of the process of settling claims.

Well, earlier this week, FINRA announced that its governing board will examine that issue when it meets in a few weeks. 

What's expected to be considered is a rule change that would bar negotiating expungements as part of settlement processes. According to a recent letter to members of Congress, the head of FINRA indicated the intent is to address "the inordinately high percentage of expungement relief granted by arbitrators."

As we noted in a post in November, a review of cases by the Public Investors Arbitration Bar Association found that requests for expungement were granted in nearly every case as part of settlement proceedings. But existing rules say such erasures are supposed to happen separately and include the seeking of a specific court order.

The proposed rule change represents a positive step for investors. But it's only a proposal at this point. Even if it is approved by the FINRA board, it reportedly still has to work through a public comment period and be cleared by the Securities and Exchange Commission, a process that experts say could take months.

Source: The Wall Street Journal, "Finra Board to Take Up Expungement Issue," Matthias Rieker, Jan. 29, 2014

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