DISPUTE RESOLUTION

General

(NEW) Predispute Arbitration Agreements in Customer Agreements

FINRA reminds member firms about requirements when using predispute arbitration agreements for customer accounts. Where member firms use mandatory arbitration clauses in their customer agreements, FINRA rules establish minimum disclosure requirements regarding the use of such clauses and prohibit predispute arbitration agreements from including conditions that, among other things, limit or contradict FINRA rules. In addition, FINRA rules do not allow class action claims in FINRA arbitration. Accordingly, FINRA rules prohibit member firms from incorporating provisions that would prevent customers from bringing or participating in judicial class actions by adding waiver language into customer agreements (class action waivers) and prohibit member firms from enforcing arbitration agreements against members of a certified or putative class action. FINRA urges member firms to take prompt steps to ensure their customer agreements fully comply with FINRA rules. Member firms that fail to comply with FINRA rules related to customer agreements may be subject to disciplinary action.

FINRA Regulatory Notice 21-16 (April 21, 2021): FINRA Reminds members About Requirements When Using Predispute Arbitrations Agreements for Customer Accounts

 

Membership Application Program

FINRA amended its Membership Application Program (MAP) rules to create further incentives for the timely payment of arbitration awards by preventing an individual from switching firms, or a firm from using asset transfers or similar transactions, to avoid payment of arbitration awards. The amendments will address situations where: (1) a FINRA member firm hires individuals with pending arbitration claims, where there are concerns about the payment of those claims should they go to award or result in a settlement, and the supervision of those individuals; and (2) a member firm with substantial arbitration claims seeks to avoid payment of the claims should they go to award or result in a settlement by shifting its assets, which are typically customer accounts, or its managers and owners, to another firm and closing down. These changes became effective on September 14, 2020.

FINRA Regulatory Notice 20-15 (May 21, 2020): FINRA Amends Rules Governing Application Program to Incentivize Payment of Arbitration Awards

 


Inactive Members and Associated Persons in Arbitration

FINRA amended its Code of Arbitration Procedure for Customer Disputes (Customer Code) to expand a customer’s options to withdraw an arbitration claim if a member firm or an associated person becomes inactive. These amendments also allow customers to amend pleadings, postpone hearings, request default proceedings and receive a refund of filing fees in these situations.

FINRA Regulatory Notice 20-11 (April 9, 2020): FINRA Amends Arbitration Code to Expand Options Available to Customers if a Firm or Associated Person Becomes Inactive