Sen. Elizabeth Warren, a Democrat from Massachusetts who recently announced she would be running for president, urged the CEO of the securities industry self-regulator, FINRA, to toughen new rules controlling the expungement of incidents on the permanent records of financial professionals.
Expungements Remove Broker Misconduct from the Permanent Public Record
Financial advisors sponsored by FINRA registered firms must submit to the self-regulator’s public database, called BrokerCheck, which is a repository of broker employment histories, disputes, and customer complaints. Broker who have been the subject of disputes or complaints can however request expungement of certain records by FINRA; these incidents are then removed from the permanent record and no longer available to the public.
For the past several months, FINRA has been seeking feedback over proposals to change the expungement rules. Senator Warren’s response aligns with other investor advocates and groups protecting investor rights who feel that the current rules for expungement are too lax and leave gaps in records of many brokers.
Study Shows that Expungement Attempts Can Be Linked to Future Misconduct
As Senator Warren pointed out in a letter to FINRA, a recent analysis conducted at Stanford University found that “expungement attempts are most often successful yet are often associated with wrongdoing.” Of the nearly 7,000 expungement attempts made between 2007 and 2016, the study showed that around 70% were successful. More ominously, the study said that, “Successful … and unsuccessful expungement attempts” by brokers “are a significant predictor of future misconduct,” and that “successful expungements increase recidivism.”
This phenomenon is precisely what Senator Warren and other investor advocates wish to combat. Without a complete record of misconduct, investors may be deprived of crucial information concerning their current or prospective financial professional.
