Are FINRA expungement hearing costs about to skyrocket?

Q: I read somewhere that FINRA is now charging almost $10,000 for an expungement hearing instead of $300. Is that right?

A: While FINRA has recently raised its fees pretty significantly for expungement cases, it’s not entirely accurate to say it costs $10,000 — at least if you’re only looking at it from the registered representative’s perspective.

In Regulatory Notice 20-25, FINRA announced that, effective for cases filed on or after Sept. 14, it was closing a loophole in its expungement process that allowed reps to pay only a $300 fee for an expungement ruling with a single arbitrator, if the rep included a damage claim, typically a nominal amount of only $1. FINRA had until now allowed that, which thereby reduced the fees assessed against the rep and qualified the matter for an arbitration to be heard by a single arbitrator

That puts the case in the lowest tier of FINRA’s fee schedule. Without the $1 claim for damages, however, the expungement request fell into the category of non-monetary claims, which had a hearing session fee of $1,125. Note that one “hearing session” is essentially a half-day, in-person hearing. Every arbitration also has a “pre-hearing conference,” which is also assessed at the same “per session” fee. In this case, an additional $1,125.

Additionally, individual brokers will also be assessed a filing fee of $1,575. However, the member firm that is named as a respondent in the expungement request filing, or that employed the associated person at the time the dispute arose, has to pay FINRA a processing fee of $3,750, as well as the member surcharge associated with a non-monetary claim, which is currently $1,900.

For those keeping track, that works out to a total of $9,475, only $2,700 of which is usually going to be the responsibility of the associated person. That’s still a big jump from the $300 it used to be.

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Even so, if you’re still employed with the member firm, it’s possible that the firm might try to recover its cost from you, and if you opt for an in-person hearing and it runs more than a half day, you’d be looking at another $1,125.

Finally, keep in mind that these are just the FINRA fees that you’ll have to pay to file the case. They don’t include the court costs that you’ll incur to get any expungement order confirmed into a judgment, nor does it include the cost of the attorney that you likely will need to hire.

Please send your questions for compliance expert Alan Foxman to fpeditor@arizent.com