More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
Charles Schwab said Thursday that it will temporarily lift a ban on client class-action suits until all legal and regulatory challenges were resolved.
In a statement, Schwab said that effective immediately, the brokerage firm was “modifying its account agreements to eliminate the existing class-action lawsuit waiver for disputes related to events occurring on or after May 15, 2013, and for the foreseeable future.”
Members of Congress, state securities regulators and FINRA itself have been up in arms over a FINRA disciplinary panel’s decision in late February to uphold Schwab’s decision to include a class-action waiver in its customer arbitration agreements.
Heath Abshure, president of the North American Securities Administrators Association and Arkansas securities commissioner, told AdvisorOne Friday that Schwab’s announcement on Thursday to temporarily waive its ban on class-action lawsuits was “no victory.” However, he said, “It does show that Schwab has at least heard our voices.”
Schwab said in its Thursday statement that “While the company believes that dispute resolution is best handled via FINRA arbitration, we have chosen to voluntarily remove the waiver going forward until the issue is resolved by the appropriate regulatory and/or court decisions.”
Schwab said that the process would “likely take considerable time to resolve, and may leave clients with a degree of uncertainty about their dispute resolution options,” so “in the meantime, we have elected to remove that uncertainty until the legal and regulatory process is completed.”
Schwab also said that it would continue its existing policy of paying for the arbitration fees of any investor electing to pursue an arbitration claim under $25,000 against the firm.
NASAA joined FINRA in its battle to overturn the decision by the self-regulator’s hearing panel in early May by filing an amicus brief with FINRA’s National Adjudicatory Council (NAC), the national committee that reviews initial decisions rendered in FINRA disciplinary and membership proceedings.
The hearing before the NAC on FINRA's appeal of the Schwab decision is scheduled to start in mid-September, according to Schwab spokesman Greg Gable. The decision rendered at the NAC meeting, Gable added, "ends the process with FINRA, but there are other legislative or regulatory avenues possible and we expect the process to take some time. We haven't made any 'until' determination at this point."
NASAA also told Securities and Exchange Commission Chairwoman Mary Jo White in a May 3 letter to use the authority granted to the agency in Section 921 of the Dodd-Frank Act to prohibit or impose limits on the use of mandatory arbitration clauses in broker-dealer and investment advisor customer contracts.
But White said before the House Financial Services Committee on Thursday that the SEC had not decided whether to do so.
Said Abshure: “We have to remain aggressive if we want Schwab, the SEC and Congress to heed our call. We are going to keep up the fight.”
Read Stop Denying Investor Rights: End Forced Abitration Now by Heath Abshure on AdvisorOne.