FINRA Files to Limit Non-Lawyers' Work on Arb Cases
Parties in FINRA-arbitrated disputes would no longer be allowed to pay non-attorneys to represent them.
The Financial Industry Regulatory Authority wants to revise its Code of Arbitration Procedure for Customer Disputes to revise and restate lawyer qualifications.
FINRA has filed with the Securities and Exchange Commission to restate the qualifications for representatives in arbitrations and mediations in the forum administered by FINRA Dispute Resolution Services, or DRS.
The changes would:
- disallow compensated representatives who are not attorneys from representing parties in the DRS forum;
- codify that a student enrolled in a law school participating in a law school clinical program or its equivalent and practicing under the supervision of an attorney may represent investors in the DRS forum; and
- clarify the circumstances in which any person, including attorneys, would be prohibited from representing parties in the DRS forum.
According to FINRA’s filing, the broker-dealer self-regulator currently permits parties to arbitrations and mediations in the DRS forum to represent themselves, to be represented by an attorney at law in good standing or to be represented by a non-attorney representative, or NAR.
Some NARs receive compensation in connection with their representation of parties.
“Compensated NARs receive monetary or non-monetary compensation in connection with the representation of parties — including, for example, advance fees, consulting fees, payments in kind, referral fees or fees pursuant to a contingent fee arrangement. Other NARs, often friends or relatives of a party, may assist parties with their cases without compensation,” FINRA states.
FINRA said that it has observed that “compensated NARs represent customers in a small percentage of the customer cases in the DRS forum — one percent — and that only a few compensated NARs regularly operate in the DRS forum today.”
Compensated NARs “often possess a background in the securities industry and primarily represent individuals in arbitration or mediation claims against broker-dealers and their associated persons,” according to the filing.
Despite the low number of compensated NARs, FINRA said its review “identified several recent allegations of improper conduct by compensated NARs in connection with their representation of parties in the DRS forum.”
In contrast, “FINRA has not identified any allegations of improper conduct by uncompensated NARs or law students.”
FINRA states that its “focus at this time is on the representation of parties in the DRS forum by compensated NARs.”
For instance, FINRA states that California recently brought a civil enforcement action against several compensated NARs “for engaging in the unauthorized practice of law, in part in the DRS forum; falsely promising to help customers recover their past failed investments through, in part, arbitration in the DRS forum; and charging advance fees in violation of California law.”