We learned this week that FINRA had a lot to say about the most recent statistical study on expungement performed by the Public Investor Arbitration Bar Association.
We led last week’s Arb Alert (SAA 2015-39) with an article about PIABA’s “followup to its influential 2013 study of expungement” and the press conference that introduced the results. Through a spokeswoman, FINRA issued a Statement (as opposed to a News or Press Release, which would be posted on FINRA’s WebSite) in response to PIABA’s conclusion that expungement is still broken in FINRA arbitration and that a new regime is required to fix it.
FINRA’s Statement began by reviewing the many steps the Authority has taken to assure that arbitrators give balanced consideration to expungement requests. The Statement starts: “FINRA has taken numerous steps to make clear that expungement is an extraordinary remedy and has trained arbitrators on the application of Rule 2080, ‘Obtaining an Order of Expungement of Customer Dispute Information from the Central Registration Depository (CRD) System.’ FINRA has supplemented that training with guidance, beginning in late 2013. On September 17, 2015, the FINRA Board approved proposed amendments to Rules 12805 and 13805 (Expungement of Customer Dispute Information under Rule 2080) to codify that guidance and adopt additional arbitration procedural modifications.”
More to Come, FINRA Promises
That opening may have sounded like FINRA would dismiss the PIABA findings, but the Statement then offers more to indicate the forum’s openness to further change. “In addition,” it continues, “the Arbitration Task Force convened in 2014 to independently recommend enhancements to the fairness and efficiency (ed: we recall the three mission objectives of the DRTF as transparency, impartiality and efficiency – we don’t want that “transparency” thing getting lost in the debates) of the arbitration forum and, comprised of several PIABA members, formed an expungement subcommittee to discuss possible enhancements to the expungement process. Among the possibilities under consideration is the creation of a Special Arbitration Panel comprised of specially trained arbitrators that would make decisions on requests for expungement (ed: That line virtually quotes the DRTF’s June 2015 Interim Report). The Task Force is expected to issue its final report by the end of 2015 and we look forward to its recommendations.”
FINRA Analyzes PIABA’s Analysis
Turning back to the new Study itself and addressing the methodology PIABA undertook in its analysis, FINRA concludes: “PIABA’s Study 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. Moreover, only 11 percent of the total number of cases cited in PIABA’s study resulted in a recommendation for expungement as of 9/30/15.”
(ed: This last sentence mystified us a bit, as it seemed to contradict PIABA’s 87.8% figure. So, we did a little Award analysis ourselves. We think FINRA may be referring to the number of cases filed in 2012, 2013 and 2014, as cited on page 5 of PIABA's report. Those figures add up to 7,621. According to SAC’s Award Database (which PIABA used in its data-gathering), there were 844 expungements issued as of 9/30/15 in Awards filed in 2012-14 (include several that were too late to be included in PIABA’s study), which amounts to 11% of 7,621. In other words, FINRA seems to be saying that, as measured against the whole, expungement grants are not commonplace.)
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