A plan has been put forward by the Financial Industry Regulatory Authority to modernize its arbitration rules, guidance and processes.
The authority is seeking public comment on the initiative published in Regulatory Notice 26-06, in which it detailed some of the key areas of concern to its arbitration forum. The notice invites all to comment on a number of specific issues raised by those who have commented in response to the FINRA Forward rule modernization initiative, including forum selection, punitive damages, motions to dismiss, as well as arbitrator qualifications and training.
The overall goal is ensure the arbitration forum is fair and efficient for all users. FINRA Forward was launched to review, update and enhance FINRA rules, guidance and processes to modernize requirements, facilitate innovation and eliminate unnecessary burdens.
FINRA said that many of these issues involving its arbitration process have been discussed in connection with the forum for years and would benefit from additional input regarding modern practices and how the forum works today for participants.
The authority seeks feedback on a number of topics, including the use of clauses that require customers to address disputes through arbitration, whether certain claims should have different procedural requirements, and if customers should have more freedom to opt for litigation over arbitration.
One area noted by FINRA pertains to the selection of forums for customer disputes. Rule 12200 requires parties to arbitrate certain disputes under the Customer Code if arbitration is either required by a written agreement or requested by the customer.
The authority notes that the question of whether forum selection clauses in members’ customer agreements requiring resolution of disputes in court or an alternative arbitration forum violates FINRA rules has been a topic of discussion for years.
FINRA received feedback saying that Rule 12200 should be amended to allow members to contractually agree to opt out of FINRA arbitration and arbitrate disputes in alternative fora when the claim is seeking damages over a certain dollar amount or involves counterparties that qualify as institutional customers under FINRA rules.
In its request for comment, FINRA asks, “Should certain categories of claims (e.g., of a certain complexity or value) or customer dispute types (e.g., those involving institutional customers or holders of institutional accounts) be subject to different requirements under FINRA rules?”
For example:
- Should certain categories of claims or customer dispute types be subject to different procedural requirements under FINRA rules, such as allowing the parties to have more control over the administration of their case? What customer protection and fairness considerations should be part of evaluating this question?
- For some types of claims in FINRA’s arbitration forum, FINRA requires arbitrators to have additional qualifications to be eligible to serve on a panel considering such claims. Should certain other categories of claims or customer dispute types be considered by a panel with additional qualifications or experience? If so, what types of claims or customer disputes and what should be the minimum additional qualifications or experience of the panel? What customer protection and fairness considerations should be part of evaluating this question?
Other topic areas addressed in the regulatory notice include punitive damages, Form U5 defamation claims, eligibility time limits and motions to dismiss. FINRA also is seeking comment on such areas as updates to the discovery process, modifying arbitration roster make-up based on the category of case and limiting customers ability to strike all non-public arbitrators, and the potential removal or redaction of published arbitration awards.
FINRA encourages all interested parties to comment. Comments must be received by May 1.
Handling financial services disputes requires counsel with a significant understanding of the industry, the laws, rules and regulations that impact our clients and the forums in which disputes are adjudicated. At Hyman Cotter, our attorneys’ unparalleled litigation experience comes from leveraging their industry-specific knowledge developed from working at firms such as Morgan Stanley, UBS Financial Services and serving as outside counsel for some of the world’s largest law firms, and through prior affiliations with the SEC. For more information about our arbitration and litigation services, please contact us at (833) 665-0784 or through our online contact form.
