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July 29, 2016 at 10:44 AM
The Financial Industry Regulatory Authority is reminding member firms of their customers’ and reps’ right to request FINRA arbitration “at any time” and that customers do not forfeit that right by signing any agreement to a dispute resolution process or an arbitration venue other than FINRA’s.
In its just-released Regulatory Notice, Forum Selection Provisions, FINRA states that member firms are not permitted “to require associated persons” — registered reps and certain firm employees — “to waive their right to arbitration under FINRA’s rules in a predispute agreement.”
Failure to comply with FINRA’s rules relating to predispute arbitration agreements with customers or with associated persons, or failure to submit a dispute to FINRA arbitration as required, “would violate FINRA rules, and member firms may be subject to disciplinary action,” FINRA warns.
Micah Hauptman, financial services counsel with the Consumer Federation of America, notes that “some firms will stop at nothing to benefit themselves” in forum selection, “including placing further restrictions on investors’ legal rights than already exist. I hope firms will take FINRA’s reminder that they can’t include such restrictions to heart.”
FINRA also filed a proposed rule Wednesday with the Securities and Exchange Commission amending its code of Arbitration Procedure for Customer Disputes to require that all parties in an arbitration, except customers who are not represented by an attorney or other person (“pro se customers”), to use the FINRA Office of Dispute Resolution’s Party Portal.
Mercer Bullard, professor of law at the University of Mississippi Law School and founder of Fund Democracy, an advocacy group for mutual fund shareholders, said the rule change would likely provide “for a more efficient, less costly [arbitration] process.”
Hugh Berkson, president of the Public Investors Arbitration Bar Association, said in an email message to ThinkAdvisor that while the rule proposal is pretty lengthy and PIABA is still digesting it, the group is “all in favor of promoting efficiency in the arbitration process, so long as that efficiency doesn’t come at the expense of the parties’ due process rights.”
