DISPUTE RESOLUTION

General

Motions to Dismiss In Arbitration

The SEC approved amendments to FINRA Rules 12504 and 13504 (Motions to Dismiss) of the Customer and Industry Codes of Arbitration Procedure (Codes) to add an additional ground for arbitrators to act on motions to dismiss prior to the conclusion of the claimant’s case in chief. The new ground provides that arbitrators may act upon a motion to dismiss a party or claim prior to the conclusion of a party’s case in chief if the arbitrators determine that the non-moving party previously brought a claim regarding the same dispute against the same party, and the dispute was fully and finally adjudicated on the merits and memorialized in an order, judgment, award or decision. The amendments are effective for motions to dismiss filed on or after January 23, 2017.

•  FINRA Regulatory Notice 17-02 (January 2017):  SEC Approves Amendments to the Codes of Arbitration Procedure Regarding Motions to Dismiss

 

Dispute Resolution Party Portal

The SEC approved amendments to the Customer and Industry Codes of Arbitration Procedure to require all parties, except customers who are not represented by an attorney or other person, to use the FINRA Office of Dispute Resolution’s Party Portal to file initial statements of claim and to file and serve most pleadings and other documents on FINRA or any other party. FINRA is also amending the Code of Mediation Procedure to permit mediation parties to agree to use the Party Portal to submit and retrieve all documents and other communications. The amendments are effective for all cases filed on or after April 3, 2017.

FINRA Regulatory Notice 17-03 (January 2017):  SEC Approves Amendments to the Customer and Industry Codes of Arbitration Procedure Regarding Required Use of the Dispute Resolution Party Portal.

 

Arbitration Award Offsets 

The SEC has approved FINRA’s rule change amending Rule 12904 (Awards) of the Code of Arbitration Procedure for Customer Disputes (Customer Code) and Rule 13904 (Awards) of the Code of Arbitration Procedure for Industry Disputes (Industry Code) to provide that absent specification to the contrary in an award, when arbitrators order opposing parties to make payments to one another, the monetary awards shall offset and the party assessed the larger amount shall pay the net difference. The amendments are effective for arbitration awards rendered on or after October 24, 2016.

• FINRA Regulatory Notice 16-36 (September 2016): SEC Approves Amendments to the Codes of Arbitration Procedure Regarding Award Offsets

 

Forum Selection Provisions

FINRA reminds member firms that customers have a right to request arbitration at FINRA’s arbitration forum at any time and do not forfeit that right under FINRA rules by signing any agreement with a forum selection provision specifying another dispute resolution process or an arbitration venue other than the FINRA arbitration forum. In addition, FINRA reminds member firms that FINRA rules do not permit member firms to require associated persons to waive their right to arbitration under FINRA’s rules in a predispute agreement. A member firm’s failure to comply with FINRA’s rules relating to predispute arbitration agreements with customers or predispute agreements with associated persons, or failure to submit a dispute to FINRA arbitration as required by FINRA’s rules, would violate FINRA rules, and member firms may be subject to disciplinary action.

• FINRA Regulatory Notice 16-25 (July 2016):  Forum Selection Provisions Involving Customers, Associated Persons and Member Firms

 

Late Cancellation Fees

The Code of Arbitration Procedure for Customer Disputes (Customer Code) and the Code of Arbitration Procedure for Industry Disputes (Industry Code) govern the payments that FINRA makes to its arbitrators for the services they provide to FINRA’s dispute resolution forum, as well as the fees assessed to the parties for arbitration proceedings. FINRA has amended Rules 12214(a), 12601(b)(2), 13214(a) and 13601(b)(2) to require that if one or more parties request a postponement or cancellation within 10 days before a scheduled hearing session and the arbitrators grant the request, the party or parties making the request would pay a late cancellation fee of $600 per arbitrator. The amendments are effective for arbitration cases filed on or after July 6, 2015. The extended cancellation period and the increased late cancellation fee do not apply to parties whose cases were filed prior to the effective date.

• FINRA Regulatory Notice 15-21 (June 2015):  SEC Approves Amendments to the Codes of Arbitration Procedure to Increase the Fees Assessed for Late Cancellation or Postponement of a Hearing

 

Definitions of Non-Public and Public Arbitrator

The SEC approved amendments to the definitions of non-public arbitrator and public arbitrator in the Customer and Industry Codes of Arbitration Procedure. The amended definitions provide, among other matters, that persons who worked in the financial industry for any duration during their careers will always be classified as non-public arbitrators, and persons who represent investors or the financial industry as a significant part of their business will also be classified as non-public, but may become public arbitrators after a cooling-off period. The amendments also reorganize the definitions to make them easier for arbitrator applicants and parties, among others, to determine the correct arbitrator classification. The amendments became effective on June 26, 2015.

• FINRA Regulatory Notice 15-18 (May 2015):  SEC Approves Amendments to Arbitration Codes to Revise the Definitions of Non-Public and Public Arbitrator

 

Confidentiality Provisions

FINRA reminds firms it is a violation of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) to include confidentiality provisions in settlement agreements or any other documents, including confidentiality stipulations made during a FINRA arbitration proceeding, that prohibit or restrict a customer or any other person from communicating with the SEC, FINRA or any federal or state regulatory authority regarding a possible securities law violation.

• FINRA Regulatory Notice 14-40 (October 2014):  Confidentiality Provisions in Settlement Agreements and the Arbitration Discovery Process

 

 

 

Sanctions Guidelines

SANCTIONS GUIDELINES

FINRAannounced that the National Adjudicatory Council (NAC) revised the Sanction Guidelines to include a new principal consideration that contemplates coverage for financial exploitation of vulnerable individuals or individuals with diminished capacity. It also includes three new guidelines relating to systemic supervisory failures, borrowing and lending arrangements, and short interest reporting. Additionally, the NAC revised the guidance concerning sanctions imposed by other regulators, indicating that these sanctions may be considered as mitigating factors.

The NAC is FINRA’s appellate tribunal for disciplinary cases and is a 15-member committee composed of industry and non-industry members. It first published the Sanction Guidelines in 1993 to familiarize member firms with some of the typical securities law or FINRA rule violations that occur, and the range of disciplinary sanctions that may result from those rule violations. The Sanction Guidelines do not prescribe fixed sanctions for particular violations, and are intended to assist FINRA’s adjudicators—Hearing Panels and the NAC—in imposing appropriate sanctions consistently and fairly in disciplinary proceedings. FINRA’s Market Regulation and Enforcement Departments also consult the Sanction Guidelines in determining the appropriate level of sanctions to seek in settled and litigated cases. The NAC last updated the Sanction Guidelines in May 2015.

The revised Sanction Guidelines resulted from a periodic review by the NAC to ensure that the Sanction Guidelines reflect recent developments in the disciplinary process, comport with changes in FINRA’s rules and accurately reflect the levels of sanctions imposed in FINRA disciplinary proceedings. The revised Sanction Guidelines outlined in Regulatory Notice 17-13 are effective immediately and available on FINRA’s website.

• FINRA Regulatory Notice 17-13 (April 2017):  FINRA's NAC Revises the Sanctions Guidelines