Financial Institutions Law Alert

On February 7, 2020, FINRA filed SR-2020-005 with the U.S. Securities & Exchange Commission (the “SEC”) proposing amendments to the FINRA Code of Arbitration Procedure for Customer and Industry Disputes to apply minimum fees to expungement requests of customer dispute information, whether made as part of a customer arbitration or as a part of an expungement request in a separate proceeding. Essentially, the rule proposal looks to increase the combined fees assessed the parties from $300 to $9,475, which is consistent with the current fee structure for non-monetary claims and reflects FINRA’s concern about practices taken to avoid or reduce fees, particularly in expungement-only proceedings. 

Under the current fee structure, FINRA assesses fees to parties based on the claim amount. For individuals requesting expungement in a separate action that includes a small monetary claim of less than $1,000, the filing fee is $50, and any pre-hearing and hearing fee is $50, for a total fee of $150. For these cases, FINRA assesses a $150 member surcharge to member firms, but waives the process fee. Therefore, the total fees FINRA assesses parties in expungement-only proceedings under the current structure are $300.

Under the new proposal, however, FINRA would assess a minimum filing fee of $1,575 against individuals for separate expungement claims, which could be greater depending upon the claimed monetary damages. Minimum pre-hearing and hearing fees assessed against the individual would be $1,125, for total fees of $3,825 in a typical expungement-only proceeding. FINRA would also assess member firms a minimum $3,750 process fee and $1,900 member surcharge, for a total cost to member firms of $5,650, which is consistent with the present fee structure for non-monetary relief. While FINRA would not assess member firms an additional member surcharge or process fee in customer arbitrations in which expungement was requested, the proposed minimum expungement hearing fee assessed against the party requesting expungement would still apply.   

The stated reason for the proposed change in expungement fee structure is to remove an unintended cost benefit by transferring the economic impact of fees from FINRA to the parties.  According to FINRA, the proposed fee structure more equitably allocates cost to reflect the general complexity of these requests and the time and effort to administer, consider and decide them. FINRA further seeks to maintain consistency in fee structure for all expungement requests and estimates that it lost $9.7 million in additional expungement fees from January 2016 – June 2019 as a result of not having the proposed minimum fee in place for such actions.

FINRA acknowledges that the proposed fee structure may disproportionately impact those more sensitive to the increased fees, such as smaller firms and the individuals they employ. Additionally, this proposal could deter the filing of meritorious expungement claims, leading to loss of business and professional opportunities, and could affect the integrity of information reported through the CRD system.

This proposal is FINRA’s latest effort to make the expungement framework more burdensome and costly for registered representatives and member firms and is similar to its proposed minimum filing fee of $1,425 in expungement-only cases contained in Regulatory Notice 17-42, which also contains a variety of other proposed rule changes related to expungement. Other recent expungement proposals include establishing a roster of specially trained arbitrators to hear expungement matters and the codification of FINRA’s Notice of Arbitrators and Parties on Expanded Expungement Guidance.

If the SEC approves the proposal, FINRA will announce the effective date in a Regulatory Notice to be published within 60 days of SEC approval. The effective date would then be within 60 days following publication of the Regulatory Notice announcing SEC approval of the proposed rule change.



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