A recent report from the Public Investors Advocate Bar Association (Piaba) highlights the potential for abuse in the process of erasing customer complaints by financial advisors. This process, known as expungement, has come under scrutiny for its lack of safeguards and transparency.
Safeguarding Accuracy of Official Records
The reforms proposed by Piaba aim to ensure that Main Street investors can rely on the accuracy of official records. It is essential for investors to have confidence in their brokers and not be misled by false claims of a complaint-free track record.
Expungement and its Flaws
According to Piaba’s report, 90% of advisor requests for expungement were granted. These requests, known as “straight-in” expungements, are typically unopposed and have been seen as eroding the credibility of Finra’s public database known as BrokerCheck.
Currently, the lack of investor participation and opposition in arbitration cases contributes to the high approval rate for expungements. Given that the investor who made the complaint is often not present to challenge the request, there is a need for greater accountability.
In an effort to address these concerns, Finra has recently made changes to the expungement process. The goal is to encourage greater participation from investors and state securities regulators, who also rely on advisors’ official records.
The abuses in the expungement process have highlighted the need for regulatory reforms. Investors deserve accurate and transparent records when evaluating brokers. As these reforms take shape, it is hoped that greater safeguards will be put in place to protect the interests of Main Street investors.
Finra Implements New Rules for Expungement Requests
Positive Response from Piaba
Piaba, an organization that has previously criticized Finra’s proposed changes to the expungement process, has expressed its satisfaction with the recent reforms. Richard Lewins, President of the Piaba Foundation and a Texas-based attorney, acknowledges the efforts of the attorneys involved in this process and commends Finra for being receptive to constructive criticism. He emphasizes that Finra and Piaba share a common goal: serving investors.
Collaboration with Alabama Securities Commission
To further enhance the effectiveness of Finra arbitration proceedings, Piaba is partnering with the Alabama Securities Commission to offer training to state securities regulators. Since Finra’s discovery process differs from that of the court system, Joe Borg, former director of the Alabama Securities Commission, explains that it is important for regulators to understand the nuances. For instance, depositions are generally not allowed under Finra rules. This collaboration aims to equip regulators with the necessary knowledge to actively participate in these proceedings.
Expanding Pro Bono Legal Program
In conclusion, Finra’s new rules regarding expungement requests signify a step towards greater transparency and accountability in the financial industry. The positive response from Piaba, as well as their collaborative efforts with the Alabama Securities Commission, demonstrates a shared commitment to serving investors’ best interests. Through these changes, Finra aims to ensure that valid complaints are appropriately recorded and visible on official records, providing valuable information to investors.