Definition of Non-Public Arbitrator

FINRA’s proposed amendments to the definition of non-public arbitrator in the Customer and Industry Codes of Arbitration Procedure have been approved by the SEC. The amended definition provides that a non-public arbitrator is a person who is otherwise qualified to serve as an arbitrator, and is disqualified from service as a public arbitrator under the Codes. The amendments became effective on October 9, 2017.

•  FINRA Regulatory Notice 17-29 (October 2017):  SEC Approves Amendments to Arbitration Codes to Revise the Definition of Non-Public Arbitrator


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


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

FINRA is revising its Sanction Guidelines to instruct adjudicators in the disciplinary process to consider customer-initiated arbitrations that result in adverse arbitration awards or settlements when assessing sanctions. Thus, when a respondent’s disciplinary history, and history of arbitration awards and arbitration settlements together with the violation found in a disciplinary case, form a pattern, the Sanction Guidelines advise that adjudicators should consider imposing more stringent sanctions. The revisions took effect for all complaints filed in FINRA’s disciplinary system beginning on June 1, 2018.

(New) Regulatory Notice 18-17 (May 2, 2018): FINRA Revises the Sanction Guidelines

This Notice advises FINRA firms of revisions to FINRA’s Sanction Guidelines. FINRA initiated a periodic review of the Sanction Guidelines through the National Adjudicatory Council (NAC) to ensure that the 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. These revisions:

• establish a new factor requiring that the exercise of undue influence over a customer be considered for all violations addressed by the Sanction Guidelines;

• introduce three new Sanction Guidelines: Systemic Supervisory Failures, Short Interest Reporting, and Borrowing From or Lending to Customers;

• present a new factor related to the mitigative effect of regulator or firm-imposed sanctions and corrective action;

• amend 12 sections of the Sanction Guidelines to revise sanctions for more serious FINRA rule violations; and

• harmonize the Sanction Guidelines to the relevant precedent, prior amendments to the Sanction Guidelines and FINRA’s rulebook consolidation process. 

The revised Sanction Guidelines are effective immediately and available on FINRA’s website at www.finra.org/Industry/Enforcement/SanctionGuidelines

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