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Finra Arbitrators Grant 70% of Record Expungement Requests, Study Finds

November 21, 2018

Finra’s arbitrators turn out to be very lenient when it comes to granting broker requests to clear their records of customer complaints: the arbitrators granted the majority of such requests over the course of nine years, according to a new study.

The process of cleaning a broker’s record from the BrokerCheck database, known as expungement, is supposed to apply to cases when allegations are factually impossible or erroneous or when brokers are found not to have been involved in alleged infractions, the Wall Street Journal writes. In reality, however, from 2007 to 2016 arbitrators granted 4,572 of the 6,700 expungement requests, or close to 70% of them, according to a study that analyzed public regulatory records cited by the paper.

The study’s authors — Colleen Honigsberg, an assistant law professor at Stanford University, and Matthew Jacob, an economics pre-doctoral research fellow at Harvard University — suggest such extensive scrubbing makes it easier for bad actors to hide, according to the Journal.

Meanwhile, more than one in five brokers to whom arbitrators denied expungement requests later got more black marks on their records, compared to 4% of all brokers who were targets of allegations of misconduct from 2007 to 2017, according to the study, the paper writes.

In December last year, Finra put out a proposal to make expungement more difficult, but it hasn’t issued a final rule yet, the paper writes.

A Finra spokeswoman tells the Journal the industry’s self-regulator is still reviewing comments on the proposal. The industry group Sifma, meanwhile, told Finra in its comments that the current rules “provide sufficient safeguards,” according to the paper.

By Alex Padalka
  • To read the Wall Street Journal article cited in this story, click here.