Post Image
FINRA Board Approves Rulemaking on Expungement and Mandatory Use of Dispute Resolution Portal
Posted on Categories FINRA Code of Arbitration, News, Other FINRA Rulemaking, RulemakingTags , , , ,

FINRA’s Board of Governors at its September meeting considered and approved rulemaking on two items of interest to arbitration practitioners.

As announced September 17th on FINRA’s Website, the Board approved a proposal to amend the Customer and Industry Codes of Arbitration Procedure “to require all parties, except customers who are not represented by an attorney or other person (pro se customers), to use the Dispute Resolution Party Portal.” The rule change would also define “party portal” and require pro se customers (ed: but not pro se industry parties?) to affirmatively opt out of Portal use. If approved, the amendments would also amend the Code of Mediation Procedure to allow mediators and parties to use the DR Portal.

The Board also approved “proposed amendments to Rules 12805 and 13805 … to codify the best practices from the Expanded Expungement Guidance document that was issued as a notice to parties and arbitrators in 2013” (ed: good idea). We’re pretty sure the following language from the Guidance will make its way into the Codes under this proposal: “Expungement is an extraordinary remedy that should be recommended only under appropriate circumstances. Customer dispute information should be expunged only when it has no meaningful investor protection or regulatory value.”

The original Website notice on this item also referred to adoption of “some arbitration procedural modifications.” The document describing the results of the Board meeting drops any reference to this. While the reference to “arbitration procedural modifications” is cryptic, it may have meant that the Board was presented with procedures for implementation of the long-awaited and oft-deferred “In Re” Expungement Proceedings proposal. After the PLI program in late July, we wrote: “We were told that the anticipated proposal has been drafted and is being made ready for presentation to the FINRA Board for approval. Of course, it could be de-railed by events and delayed again, as in the past.” (See SAA 2015-29). If the “In Re” proceedings were the aim of the “arbitration procedural modifications” reference, we would have to interpret the omission in the latest Board message as meaning that that part of the expungement dialogue has been tabled.

(ed: *Another thing we reported after the PLI program: PIABA will be issuing an updated expungement study in the near future (SAA 2013-38; 2015-29). With the move to codify its earlier guidance, FINRA may be moving defensively to blunt an anticipated assault on this issue. **Given the widespread and expanding use of the DR Portal, mandatory use for all but pro se customers was inevitable. FINRA officials in the past have stated that many pro se parties already use the Portal on a voluntary basis, so if approved, we see almost every case going through the Portal. ***We noticed that the expungement guidance bears a prominent legend advising that it was “Updated September 2015.” Some indication of what has changed within this lengthy Webpage would have been welcome. ****As we’ve said in the past, the Board’s actions are the first step in a long journey. This action authorizes staff to file a proposed rule change with the SEC. Next is the actual Rule 19b filing, publication in the Federal Register, public comments, response to comments, rule approval by the SEC, and publication of a Regulatory Notice. FINRA nicely describes the process on its Website. *****We will track the proposed rule change and keep our readers informed.) (SAC Ref. No. 2015-35-01)

Like what you see here?

Twice a week we present blog posts consisting of one write-up from each of our two flagship weekly online Alert services. Consider a subscription to these publications to receive the full array of coverage right on your desktop every week. Give it a try and sign up for a free trial to the Securities Arbitration Alert and the Securities Litigation Alert.

Read Our Recent Blog