Frequently Asked Questions about Expungement of Customer Dispute Information Under Rules 12800, 12805 and 13805

Effective October 16, 2023, FINRA revised Rules 12800 and 12805 of the Code of Arbitration Procedure for Customer Disputes (Customer Code) and Rule 13805 of the Code of Arbitration Procedure for Industry Disputes (Industry Code) relating to the expungement of customer dispute information from the Central Registration Depository (CRD^®). These frequently asked questions provide guidance regarding these rules.

For additional information, see Expungement of Customer Dispute Information and Regulatory Notice 23-12.

Expungement of Customer Dispute Information

1. Do Rules 12800, 12805 and 13805 apply to all expungement requests?

No. Rules 12800 and 12805 apply to requests to expunge customer dispute information from CRD filed by an associated person (AP) during an investment-related, customer-initiated arbitration (customer arbitration), or filed by a party to a customer arbitration on behalf of an AP (on-behalf-of requests). The amendments to Rules 12800 and 12805 apply to requests to expunge customer dispute information from CRD associated with a customer arbitration filed in the FINRA Dispute Resolution Services (DRS) arbitration forum on or after October 16, 2023.

Rule 13805 applies to expungement requests filed by an AP separate from a customer arbitration, also known as straight-in requests. The amendments to Rule 13805 apply to straight-in requests filed in the DRS arbitration forum on or after October 16, 2023.

2. What type of information can be expunged under Rules 12800, 12805 and 13805?

Rules 12800, 12805 and 13805 apply to requests to expunge customer dispute information from CRD. Member firms, APs and regulatory authorities report registration information maintained in CRD by responding to questions on uniform registration forms, including Forms U4, U5 and U6. Customer dispute information (i.e., questions and disclosure reporting pages about customer arbitrations, civil litigations or customer complaints) is one type of registration information maintained in CRD.

3. Does FINRA require court confirmation of an arbitration award containing expungement relief of customer dispute information?

Yes. Rule 2080 requires that a court of competent jurisdiction confirm arbitration awards containing expungement relief before FINRA will expunge customer dispute information from CRD. Rule 2080 also requires that FINRA be named as an additional party in any court proceeding related to the expungement of customer dispute information, unless FINRA waives being named. See Rule 2080 and Frequently Asked Questions about FINRA Rule 2080 (Expungement) for information regarding the court confirmation and waiver process.

Requesting Expungement Under Rule 12805 of the Customer Code

4. An AP is named in a customer arbitration administered under Rule 12805 of the Customer Code. The AP wants to seek expungement of the customer dispute information associated with the customer arbitration. Must the AP request expungement during the customer arbitration?

Yes. An AP who is named in the customer arbitration must request expungement of customer dispute information associated with the customer arbitration under the Customer Code, provided the request is not barred under Rule 12805(a)(1)(B). If the AP does not request expungement during the customer arbitration, the AP will forfeit the ability to request expungement of the customer dispute information associated with the customer arbitration in any subsequent proceeding.

5. An AP named in a customer arbitration wants to seek expungement of the customer dispute information associated with the customer arbitration. How and when must the AP file the request for expungement?

6. An AP named in a customer arbitration wants to seek expungement of the customer dispute information associated with the customer arbitration. However, the parties settle their dispute before the AP could file a request for expungement and before the deadlines for filing a request for expungement have passed. May the AP still seek expungement of the customer dispute information associated with the settled customer arbitration?

Yes. The AP named in the customer arbitration may file a straight-in request under Rule 13805 of the Industry Code, provided the request is not barred under Rule 13805(a)(2).

Requesting Expungement Under Rule 12800 of the Customer Code

7. An AP is named in a simplified arbitration administered under Rule 12800 of the Customer Code, i.e., an arbitration in which the amount in dispute is $50,000 or less. The AP wants to seek expungement of the customer dispute information associated with the simplified customer arbitration. Must the AP request expungement during the simplified customer arbitration?

No. An AP named in a simplified customer arbitration may file an expungement request during the simplified customer arbitration. If no such request is filed in the simplified customer arbitration, the AP may file a straight-in request under Rule 13805 of the Industry Code, provided the request is not barred under Rule 13805(a)(2).

8. If an AP named in a simplified customer arbitration requests expungement of the customer dispute information associated with the simplified customer arbitration, how and when must the AP file the request for expungement?

The AP must include the request for expungement in the answer or a separate pleading requesting expungement. If the request is included in the answer, it must be filed within 45 days of receipt of the customer’s statement of claim in accordance with existing requirements under the Customer Code. If the AP requests expungement in a separate pleading, rather than the answer, the request must be filed within 30 days after the date FINRA notifies the AP of the appointment of the arbitrator. If an AP submits a request for expungement in a simplified customer arbitration, the arbitrator must decide the expungement request regardless of how the simplified customer arbitration is resolved.

9. If an AP files a request for expungement in a simplified customer arbitration decided without a hearing or during a Special Proceeding, when would the arbitrator decide the request?

If the customer opts not to have a hearing or chooses a Special Proceeding, the arbitrator must decide the customer’s dispute first and issue an award. After the arbitrator decides the customer’s dispute, the arbitrator must hold a separate expungement hearing to decide the expungement request, and the arbitrator must issue a decision on the expungement request in a separate, subsequent award.

Requesting Expungement on Behalf of an Unnamed Person Under Rules 12800 and 12805

10. An AP is not named in a customer arbitration, but the AP is the subject of a customer arbitration administered under Rules 12800 or 12805. The AP wants to seek expungement of the customer dispute information associated with the customer arbitration. Is there a way for the AP to request expungement during the customer arbitration?

Yes. For purposes of Rules 12800 and 12805, an AP who is identified in Forms U4, U5, or U6 as having been the subject of a customer arbitration that alleged that the AP or former AP was involved in one or more sales practice violations, but who is not named as a respondent in the customer arbitration is an “unnamed person.” The only way for an unnamed person to request expungement during a customer arbitration is for a party to the customer arbitration to file with the Director of DRS a signed form together with the written request for expungement, provided the request is not barred under Rules 12800(d)(2)(A) or 12805(a)(2)(B).

11. Why must an unnamed person and requesting party sign the Form Requesting Expungement on Behalf of an Unnamed Person?

In accordance with Rules 12800 and 12805, by signing the Form Requesting Expungement on Behalf of an Unnamed Person (Form), the requesting party is agreeing to represent the unnamed person and the unnamed person’s interests and to pursue the request for expungement on behalf of the unnamed person during the customer arbitration. The unnamed person is consenting to the filing of the on-behalf-of request and is agreeing to be bound by the terms of the Form and the panel’s decision on the request. In addition, by signing the Form, the unnamed person’s signature serves as acknowledgment of the requirements in the Customer Code that if (i) the customer arbitration closes by award after a hearing, the unnamed person is barred from filing a request to expunge the same customer dispute information in any subsequent proceeding and (ii) the requesting party withdraws or does not pursue the on-behalf-of request, the panel is required to deny the on-behalf-of request with prejudice.

12. How can an unnamed person determine the status of a customer arbitration for purposes of complying with the requirement under Rule 13805 that a request for expungement must be made within two years of the close of the customer arbitration?

It is the unnamed person’s responsibility to monitor the status of the customer arbitration by requesting information from a party to the case, reviewing changes to the disclosure information contained in their CRD report, or by contacting DRS at [email protected]. Please note that, even if one or more parties to a customer arbitration reach a settlement with a customer, the customer arbitration would still be open as long as there are other parties to the customer arbitration who have not reached a settlement. In contacting DRS, the unnamed person should provide the Arbitration Case Number and make clear that they are seeking information on whether the case has closed and if so, on what date.

Straight-in Requests and the Special Arbitrator Roster Under the Industry Code

13. What is a straight-in request?

A straight-in request is a request to expunge customer dispute information that is filed by an AP separate from a customer arbitration under Rule 13805 of the Industry Code. An AP must file a straight-in request against the member firm at which the AP was associated at the time the customer dispute arose.

14. Can a single arbitrator decide straight-in requests?

No. Straight-in requests are decided by three public arbitrators who are randomly selected by the list selection algorithm from a roster of arbitrators who:

are eligible for the chairperson roster in accordance with Rule 12400(c);
have evidenced successful completion of, and agreement with, the Enhanced Expungement Training; and
have served as an arbitrator through award on at least four customer arbitrations in which a hearing was held, not including hearings for Special Proceeding cases held pursuant to Rule 12800(c)(3)(B).

This roster of experienced public arbitrators with enhanced expungement training is also referred to as the “Special Arbitrator Roster.”

15. When an AP files a straight-in request, the list selection algorithm will randomly select three arbitrators from the Special Arbitrator Roster to decide the straight-in request. Why are the parties not permitted to strike and rank arbitrators, stipulate to an arbitrator’s removal, or agree to fewer than three arbitrators when there is a straight-in request, as parties are allowed to do in other cases?

These limitations will minimize the potential for the parties to the arbitration to influence the outcome of the request through arbitrator selection. However, parties to the straight-in request are permitted to challenge an arbitrator selected for cause. If an arbitrator is removed as a result of a causal challenge, the list selection algorithm will randomly select a replacement arbitrator from the Special Arbitrator Roster.

16. Is an AP who has filed a straight-in request required to notify the customers whose customer arbitration, civil litigation or complaint is the subject of the straight-in request?

Yes. An AP who has filed a straight-in request is required to serve all customers whose customer arbitration, civil litigation or complaint is the subject of the straight-in request with (i) a copy of the statement of claim within 10 days of filing it with the Director of DRS and (ii) a copy of any answer within 10 days of the filing of each answer with the Director of DRS.

17. What documents or information must the AP provide to the panel for the panel to determine whether the customer has been served?

An AP is required to file with the panel proof of service for the statement of claim and any answers, copies of all documents provided by the AP to the customers and copies of all communications sent to the customers and responses received by the AP from the customers. If an AP is unable to provide proof of service, the panel will evaluate the circumstances relating to the AP’s attempts to serve the customer(s). The panel may order the AP to attempt personal service on the customer(s) or submit an affidavit detailing their attempts to serve the customer(s).

18. If an AP does not provide the panel with proof of service for the statement of claim and any answers, copies of all documents provided by the AP to the customers and copies of all communications sent to the customers and responses received by the AP from the customers, what action can the panel take?

If the AP fails to provide proof of service for the required documents, the panel may, pursuant to Rule 13212: (i) sanction the AP; (ii) initiate a disciplinary referral at the conclusion of the arbitration; or (iii) dismiss the straight-in request with prejudice for material and intentional failure to comply with an order of the panel if prior warnings or sanctions have proven ineffective. The panel also has the authority under Rule 13805(b)(1)(A)(i)-(ii) to determine that extraordinary circumstances exist which make service impracticable.

19. An AP wants to seek expungement of a customer complaint that was initially reported to CRD before October 16, 2023. The customer complaint is not associated with a customer arbitration or civil litigation, and the member firm at which the AP was associated when the dispute arose has concluded its investigation of the customer complaint. By when must the AP file a straight-in request seeking expungement of the customer complaint?

The AP must file the straight-in request within three years of October 16, 2023, provided the request is not otherwise barred under Rule 13805(a)(2).

20. An AP wants to seek expungement of a customer complaint that was initially reported to CRD after October 16, 2023. The customer complaint is not associated with a customer arbitration or civil litigation, and the member firm at which the AP was associated when the dispute arose has concluded its investigation of the customer complaint. By when must the AP file a straight-in request seeking expungement of the customer complaint?

The AP must file a straight-in request within three years from the date that the customer complaint was initially reported to CRD, provided the request is not otherwise barred under Rule 13805(a)(2).

21. An AP wants to seek expungement of customer dispute information that is associated with a customer arbitration. The customer arbitration was filed before October 16, 2023, but the parties settle the customer arbitration after October 16, 2023. By when must the AP file a straight-in request to expunge the customer dispute information associated with the customer arbitration?

The AP must file the straight-in request within two years after the close of the customer arbitration, provided the request is not otherwise barred under Rule 13805(a)(2).

22. A customer complaint is reported to CRD after October 16, 2023. The AP does not seek expungement of the customer complaint. Later, in accordance with the requirements of the Customer Code, the customer files a statement of claim in arbitration that is associated with the customer complaint and names the AP. In accordance with Rule 12805, the AP seeks expungement of the customer dispute information during the customer arbitration. The parties then settle the arbitration. The AP wants to file a straight-in request to seek expungement of the customer dispute information. By when must the AP file the straight-in request?

The AP must file the straight-in request within two years of the close of the customer arbitration, provided the request is not otherwise barred under Rule 13805(a)(2).

23. A customer files a statement of claim naming a member firm and AP before October 16, 2023. During the customer arbitration, the AP seeks expungement of customer dispute information associated with the customer arbitration. The parties settle the customer arbitration before October 16, 2023 and the panel does not decide the issue of expungement. Can the AP file a straight-in request to expunge the customer dispute information associated with the customer arbitration?

Yes. The AP may file a straight-in request under Rule 13805 within two years of October 16, 2023, provided the request is not otherwise barred under Rule 13805(a)(2).

24. Does the six-year eligibility requirement of Rule 13206(a) apply to straight-in requests?

Yes. The six-year eligibility rule applies to all arbitration claims, including straight-in requests. Rule 13206(a) provides that no claim shall be eligible for submission to arbitration where six years have elapsed from the occurrence or event giving rise to the claim. The panel resolves all issues related to eligibility under Rule 13206. Thus, even if an AP files a straight-in request within the time limits set forth in Rule 13805(a)(2)(B), the panel would decide whether to dismiss a claim pursuant to Rule 13206(a). The issue of eligibility may be raised in a motion by the parties or sua sponte by the panel.

Participation of an Authorized Representative of State Securities Regulators in Straight-In Requests

25. Why are state securities regulators permitted to submit their position on the expungement request in writing or to attend and participate in straight-in requests?

Allowing an authorized representative of state securities regulators to submit their position on the expungement request in writing or to attend and participate in straight-in requests provides states the opportunity to satisfy their regulatory obligations, while at the same time increasing the likelihood that panels deciding straight-in requests have sufficient information to make informed decisions.

Requirements Applicable to All Expungement Hearings

26. What affirmative findings must a panel make to issue an award containing expungement relief?

To issue an award containing expungement relief, the panel, whether a single arbitrator or a three-person panel, must find that one or more of the grounds for expungement enumerated in Rules 12805(c)(8)(A)(i) or 13805(c)(9)(A)(i), as applicable, has been established:

the claim, allegation or information is factually impossible or clearly erroneous;
the AP was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
the claim, allegation or information is false.

27. Must the decision of a three-person panel required to issue an award containing expungement relief be unanimous?

Yes. A three-person panel must agree unanimously that one or more of the three narrow grounds enumerated in Rules 12805(c)(8)(A)(i) or 13805(c)(9)(A)(i), as applicable, has been established to issue an award containing expungement relief. If the panel cannot agree unanimously that at least one ground has been established, the expungement request must be denied.

Although a three-person panel must unanimously agree to issue an award containing expungement relief, a panel’s decision on the merits of a customer’s claim(s) decided during a customer arbitration need not be unanimous.