Lessons and Insights from FINRA Arbitration Task Force Final Report

The Financial Industry Regulatory Authority’s (FINRA) Dispute Resolution division provides a forum where issues affecting brokers and securities can be heard in a neutral forum. FINRA handles the vast majority of securities-related arbitrations and mediations in the United States hearing more than 99 percent of these matters. In essence, it is the de facto sole arbitration forum for many securities and broker-related disputes. As such, FINRA maintains a large list of financial arbitrators and mediators through the 50 states, in Puerto Rico, and also in London.

However, despite the dominance of FINRA as an arbitrating and mediating body, that does not mean that the organization has become complacent or is seeking to freeze the system in a moment in time. Quite to the contrary, FINRA constantly looks to adapt and evolve its practices. Thus, it is essential that when pursuing a FINRA arbitration that you work with a representative who is well-versed in policies, regulations, and recent updates to the same. William S. Heyman of the Law Firm of William S. Heyman can provide this guidance. To schedule a confidential consultation regarding financial advisory services or FINRA arbitrations or mediations call (410) 305-9287 or contact the firm online.

What Arbitration Issues Did the Task Force Address?

The FINRA report states that one of its most important concerns is related to the quality or its arbitrators and the organization’s ability to attract new, qualified arbitrators to the organization. The task force determined that the below market rate is hampering the organization’s ability to recruit. Thus, the panel recommended an increase in arbitrator compensation for hearing held under FINRA Rules 12600, 12805, 13600, and 13805.

The task force also addressed issues concerning The Central Registration Depository (CRD®). More specifically, the organization analyzed brokers’ contentions that keeping record of consumer complaints against the financial professional can lead to great harms even when the complaint was unfounded. There had been significant development in this area including a 2004 FINRA warning regarding the fact that negotiation of settlements including false or misleading expungement provisions are against FINRA rules. Additionally, a 2014 rule filed with the SEC, prohibited firms from conditioning a settlement on the consumer’s consent to an expungement. In this regard, the panel recommended the creation of a special arbitration panel to conduct hearings and decide upon arbitration requests.  Furthermore, the panel recommended additional arbitrator training regarding expungement requests which most likely means a more stringent and painstaking review of the same.

Financial Incentives are Provided for Early Successful Mediation

The task force also addressed concerns that “SRO arbitration has become too adversarial, too costly, and too time consuming.” Thus the task force recommended an automatic mediation process for all claims filed. Furthermore, the task force does not believe that larger claims should be forced into mediation and thus provides for an opt-out by either party.

As part of the goal to reduce the adversarial nature of the proceedings and to provide greater efficiency, the panel also recommended to provide for incentives premised on the early settlement of mediated matters. Per the task force’s recommendations, matters that settle pre-answer would have 100% of fees refunded. Matters that settle pre-list selection would be entitled to an 80% refund. Matters settling pre-IPHC would be entitled to a 65% refund while matters settling pre-discovery would receive a 50% refund.

Task Force Addresses Dispute over Motions to Dismiss

The propriety over motions to dismiss a matter prior to a hearing on the merits has long been a rather hot-button issue. On one hand, customers typically believe they should have the right to present their claims since the arbitration process is different from the courts of law. Generally financial brokers and other respondents were more sensitive to the need for a responsive means to dispatch with unfounded or frivolous claims brought in arbitration. The practice of filing motions to dismiss was restricted in 2009 under FINRA Rule 12504(a). The task force engaged in a statistical analysis and determined that the rule appears to be working as intended and was not being abused. The task force also examined FINRA Rule 12206(a) regarding motions to dismiss due to statute of limitations reasons, but declined to make any recommendation due to a lack of agreement among members. While no change was made regarding this rule, it appears that there is significant disagreement regarding its functioning.

Rely on an Experienced FINRA Lawyer for Representation

When facing a FINRA arbitration as a broker, financial organization, or as a consumer a representative who understands the rules and processes can make all the difference. Litigation attorney William Heyman of the Law Firm of William S. Heyman can provide client-focused representation in an array of matters. To schedule a confidential consultation call (410) 305-9287 or contact him online.