SEC Approves FINRA Rule to Prohibit Conditioning Settlements on Expungements

WASHINGTON — The Financial Industry Regulatory Authority (FINRA) today announced that the Securities and Exchange Commission (SEC) has approved a new rule prohibiting firms and registered representatives from conditioning settlement of a customer dispute on—or otherwise compensating a customer for—the customer’s agreement to consent to, or not to oppose, the firm’s or representative’s request to expunge such information from the Central Registration Depository (CRD™) system.

Richard Ketchum, FINRA Chairman and Chief Executive Officer, said, “This rule will prohibit firms and reps from conditioning settlements on a customer’s agreement not to oppose expungement, thus protecting the integrity of the CRD system and disclosure of material information to investors.”

FINRA operates the CRD system, which is an online registration and licensing system for the securities industry. The CRD system contains information regarding members and registered representatives, such as personal, registration and employment history, as well as disclosure information including criminal matters, regulatory and disciplinary actions, civil judicial actions, and information relating to customer complaints and disputes. The information FINRA makes public through BrokerCheck is derived from CRD. Brokers who wish to have a customer dispute removed from the CRD system and, thereby, from BrokerCheck, must obtain a court order confirming an arbitration award recommending expungement relief.

FINRA will announce the effective date of the new rule in a Regulatory Notice to be published shortly.

FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business— from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.