DEFINITION of 'Expunge'

Expunge is the act of eliminating a formal customer complaint lodged against a securities broker from Financial Industry Regulatory Authority's (FINRA) public records. These records on brokers are held in the Central Registration Depository (CRD) system as a way to monitor professional conduct of brokers. A broker who feels that an unfair complaint has been registered in CRD against him or her may take action to have the black mark expunged. Any broker would want to have a clean record to help carry out his or her business affairs.

BREAKING DOWN 'Expunge'

Customer complaints submitted to FINRA about bad broker conduct are entered into the CRD system, placed in FINRA's public BrokerCheck website, and recorded on the broker's Form U-4. Perhaps unfairly, complaints are disclosed regardless of whether it has been determined that the broker has actually committed any wrongdoing. Even if a complaint is later dropped or FINRA arbitrators conclude that a complaint lacks merit, the complaint will still appear in BrokerCheck. It will remain there unless the broker successfully gets FINRA to expunge the complaint.

Expunging Is Not Easy

The process to expunge a complaint is governed by FINRA Rules 12805 and 2080. FINRA calls expungement an "extraordinary measure," so a broker starts off by staring at a high wall to climb. The broker must hold an in-person or telephonic session with an arbitration panel to plead his case; this panel then must agree to pass on the case to another set of adjudicators, and if they concur the broker then must return to FINRA to seek removal of the undesired record. The entire process can take up to 10 months.

As of February 2018, FINRA had proposed amendments on the table for expungement. These amendments, if passed, will make it even more difficult for a complaint to be expunged. Among the new rules will be in-person only hearings (no hearings by teleconference); payment of a fee of at least $1,450; time limit of one year to bring an expungement request; requirement of a unanimous decision as opposed to the current majority decision; and convincing the arbitration panel that a customer complaint "has no investor protection or regulatory value." The vagueness of this description only adds to the height of the wall.

In FINRA's defense, brokers chasing money for a living have demonstrated that they do not always act ethically. Potential long-lasting (or even permanent) entries in BrokerCheck that would reflect poorly on them serve as deterrents to unprofessional conduct. This is perhaps the reason that the expungement process for a broker is already daunting, and FINRA aims to make it even more so.

RELATED TERMS
  1. Financial Industry Regulatory Authority ...

    The Financial Industry Regulatory Authority (FINRA) is a regulatory ...
  2. FINRA BrokerCheck

    FINRA BrokerCheck is a free, online tool that helps individuals ...
  3. Central Registration Depository ...

    The Central Registration Depository (CRD) is a database maintained ...
  4. National Association of Securities ...

    The National Association of Securities Dealers (NASD) was a self-regulatory ...
  5. Broker

    1. An individual or firm that charges a fee or commission for ...
  6. Carrying Broker

    Carrying broker refers to a commodities or securities broking ...
Related Articles
  1. Financial Advisor

    How Advisors Can Expunge Invalid Complaints

    FINRA has a procedure by which advisors can expunge unwarranted complaints from their records.
  2. Financial Advisor

    Why Financial Advisor Background Checks Are Vital

    An alliance of public interest groups is pressuring FINRA to broaden its BrokerCheck tool.
  3. Investing

    Resolving Disputes With Your Financial Advisor

    Before you blame your advisor for your losses, be sure you know your rights and responsibilities.
  4. Trading

    Is your forex broker a scam?

    While the forex market is slowly becoming more regulated, there are many unscrupulous brokers who should not be in business.
  5. Insights

    If You Win a Broker Arbitration, But Can't Collect

    Here's what to do next if your broker stiffs you when you win an arbitration.
  6. Investing

    Picking your first broker

    If you're a rookie investor, choosing a broker may be your first big investment decision. Learn more on whether you should you go with a full-service broker or a discount broker.
  7. Investing

    Brokerage Accounts, Explained

    Brokerages bring together customers or institutions and world financial markets. Here's everything to know about how they operate and what they do.
  8. Financial Advisor

    When A Dispute With Your Broker Calls For Arbitration

    Do you have a claim you'd like to file? We'll take you through this process step by step.
  9. Investing

    Is Your Broker Legit? 6 Steps to Take

    The Great Recession may be over, but broker wrongdoing hasn't. How to avoid the next Bernie Madoff.
  10. Financial Advisor

    Deal Effectively With Difficult Clients

    Learn how to tame the most shrewish clients with these simple methods.
RELATED FAQS
  1. Can a Broker Sell Your Stocks Without Permission?

    In this article, find out if and when it's legal for a broker to sell securities from a customer's account and portfolio ... Read Answer >>
  2. Why Do Brokers Ask for Personal Information?

    There are 3 reasons a broker needs personal information: suitability, record-keeping and the law. Read Answer >>
Trading Center