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Brokers' Records Wiped Clean Too Often

Brokers' Records Wiped Clean Too Often

Too many advisors are still getting their records wiped clean, according to a new report from the Public Investors Arbitration Bar Association. The study found between 2012 and 2014, about 88 percent of brokers succeeded in purging past issues on their records after settling customer disputes.

“Far from being an extraordinary remedy granted only when the expunged information has no meaningful investor protection or regulatory value, since 2007, expungement relief has been granted in the overwhelming majority of settled customer cases,” said Scott Ilgenfritz, PIABA board member and lead author of the study.

But FINRA disputes the study’s findings, releasing a statement on Tuesday stating that PIABA research “reflects no qualitative analysis of the awards recommending expungement and therefore no assessment of whether the information that was the subject of the recommendation had any investor protection or regulatory value.”

PIABA conducted an initial study in 2013, which found that 89 percent of expungement requests were granted between 2007 and 2009 in cases where customer claims were settled. Additionally, for cases filed between May 2009 and December 2011, expungement was allowed in 96.9 percent of cases following the settlement of the customers' claims.

The rate of expungements has not decreased much. In cases involving stipulated awards or settled customer claims, expungement relief was granted in 86.5 percent of the time in 2012, about 89.8 percent of the time in 2013 and 91.7 percent of the time in 2014.

PIABA also reviewed cases that went to arbitration, but the study found that the percentage of expungement recommendations granted in those cases was lower than in settled cases, particularly if the investors won their case.  

FINRA noted in its statement that only 11 percent of the total 7,621 cases cited in PIABA’s study, taking into account both settled and arbitrated cases, resulted in a recommendation for expungement as of Sept. 30, 2015.

Additionally, the regulator stood by its record, saying that the organization has taken numerous steps to make clear that expungement is an extraordinary remedy and has trained arbitrators with that in mind as well. And last month, FINRA’s board approved proposed amendments to Rules 12805 and 13805 around the expungement of customer dispute information to adopt additional arbitration procedural modifications.

FINRA also set up an arbitration task force, which first convened in 2014, to independently recommend enhancements to the fairness and efficiency of the arbitration forum. The task force is expected to issue its final report by the end of 2015.

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