FINRA is temporarily withdrawing broker elimination rule from the SEC


    The financial industry regulator has temporarily withdrawn a rule filing from the Securities and Exchange Commission’s scrutiny that would make several changes to FINRA’s cancellation process, including special training for arbitrators and a mandate that arbitration requests be decided by a three-person panel “randomly.” selected “referees.

    The withdrawal occurs on the same day as the SEC’s deadline for approving or denying the rule filing. According to FINRA, the agency decided to pull the rule out of review so that it can further examine “whether changes to the submission are appropriate”.

    “FINRA undertakes to limit the deletion process so that it works as intended – as an extraordinary legal remedy that is only appropriate in certain circumstances when the information provided by the (CSDs) is clearly inaccurate,” the agency said in the statement on the revocation. “We continue to take significant steps to improve controls on the existing deletion process in the near future, including our proposal for specialized bodies, while at the same time working to support the development of basic multi-stakeholder solutions.”

    Filing the rule would employ a random three-person panel made up of public arbitrators with no “significant industry ties,” according to a FINRA website detailing the filing. It would also have prohibited the parties to a “straight-in” motion from approving fewer than three arbitrators and dismissing arbitrators. Additionally, filing the rule would impose time limits on brokers who can request deletion, preventing them from requesting deletion many years or even decades after the original dispute was reported to the CRD system.

    Filing the rule would also have notified state securities regulators of deletion requests, which advocates of investors in arbitration have continued to demand. According to a recent report from the Public Investors Advocacy Bar Association (PIABA), the current arbitration process will not notify state regulators of a deletion until that broker finds a final arbitration award upheld by a court.

    PIABA President David Meyer stressed that successful arbitration requests could mean that state securities regulators would lose access to information they would otherwise have had. In its statement, FINRA also promised to continue working with the North American Securities Administrators Association to “assist in redesigning the current deletion process.”

    The PIABA report found that FINRA arbitrators approve deletion requests in 90% of cases. The number of “direct deletion cases” in which a broker initiates arbitration against his own company to get the deletion of a complaint from his files increased from 59 cases in 2015 to 545 in 2018. In these cases, Der The customer who submitted the original complaint is not one of the parties, according to PIABA.

    PIABA also argued in the report that FINRA must make it easier for parties who might oppose a deletion request to participate in the process, and suggested the agency set up an “investor lawyer” to handle cases, with the Vice-President the PIABA Foundation, Lisa Braganca, argued such a person could be responsible for looking after the store to ensure that valid complaints are not cleared from the CRD.

    So is the agency published an information page on the filing of the rule and the deletion process in general, noting that deletions are still a relatively rare occurrence; Of the 35,000 disclosures of information on customer disputes in the CRD system between 2015 and 2020, around 1,550 were deleted by court order, according to the regulatory authority.


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