On July 20, 2020, the Financial Industry Regulatory Authority (FINRA) issued Notice 20-25, which amends the FINRA rules to require the assessment minimum fees in connection with all expungement requests. 

FINRA keeps track of broker-dealers’ and registered representatives’ disclosures and administrative information through its Central Registration Depository (CRD). The information found on CRD is provided through various required registration forms submitted by broker-dealers and regulators. For instance, registered representatives must fill out and file a Form U4 on FINRA’s CRD system in order to become registered with a new FINRA member firm. If the registered representative receives a customer $5,000 or more while still employed with the firm, the firm must update that representative’s Form U4 to reflect the disclosure of that customer complaint. 

While the CRD system is not publicly accessible, FINRA offers an online tool called BrokerCheck which allows members of the public to obtain certain, limited CRD information, including a summary of a broker’s credentials, qualifications, licenses, employment history and any disclosures involving customer complaints, disputes or civil, criminal and regulatory actions. 

Fortunately, the relevant rules allow representatives to seek expungement of a customer dispute from their CRD records by filing arbitration claim with FINRA Dispute Resolution against his or her current or former firm, or against the customer. If the disclosure at issue is that of a customer arbitration claim, a registered representative may also make an expungement request as part of that customer arbitration proceeding.  As with most arbitration claims, a filing fee is assessed against any party making an expungement requests and, if the matter goes to an arbitration hearing, the parties will be charged a fee all hearing sessions.

Under the current fee structure, parties seeking expungement must pay a filing fee based the schedule listed under the relevant FINRA rule. The schedule lists fees ranging from $50 for claims under $1,000, to $2,250 for claims over $5 million. For Non-Monetary/Not Specified claims, which include expungement requests, the schedule lists a fee of $1,575. The rules provide for a similar fee structure for hearing sessions. 

Historically, this system allowed a registered representative seeking expungement to reduce their fees by simply adding a nominal monetary claim to their expungement request. As a result, FINRA became “concerned about practices to avoid fees applicable to expungement requests…[wherein parties] often add a small monetary claim (typically, one dollar) to the expungement request to reduce the fees assessed against the associated person and qualify for an arbitration heard by a single arbitrator.” FINRA addressed these concerns in Notice 20-25, which amends the rules to require that a party seeking an expungement be assessed minimum filing fee of $1,575 as well as a minimum hearing session fee, irrespective of whether a monetary claim is added to the expungement request. 

But there is some good news: the amended rules do not take effect until September 14, 2020, so those who make their expungement requests before that date can still avoid paying the higher fees. 

The attorneys at Chilivis Grubman represent broker-dealers and registered representatives in all types of FINRA disputes, including expungement proceedings. If you need assistance with such a matter, please contact us today.