What is FINRA arbitration?

FINRA arbitration is a method of resolving disputes between investors and brokerage firms or financial advisors outside the court system. It involves a neutral third party, an arbitrator, who reviews the case and makes a binding decision.

Why choose arbitration over litigation?

Arbitration is typically faster, less formal, and more cost-effective than litigation. It also provides a final resolution to disputes, with limited grounds for appeal. Most relationships with financial advisors are formalized by entering into a contract which contains a dispute resolution clause. Nationally, most dispute resolution clauses provide for FINRA arbitration.

Who can file a FINRA arbitration claim?

Investors, brokerage firms, and financial advisors can file a FINRA arbitration claim if they have a dispute related to securities or investment activities. FINRA arbitration is normally the forum for disputes among registered persons, brokerage firms and the public customer clients of the firms.

How do I start the FINRA arbitration process?

To start the arbitration process, Bakhtiari & Harrison will file a Statement of Claim with FINRA, detailing the nature of the dispute, the parties involved, and the relief sought.

What is a Statement of Claim?

A Statement of Claim is a written document submitted by the claimant outlining the facts of the dispute, legal claims, and the desired outcome.

What happens after filing the Statement of Claim?

After filing, the respondent has 45 days to answer the Statement of Claim. The answer must address the claims and may include counterclaims or other relief sought.

What fees are involved in FINRA arbitration?

Fees include filing fees, hearing session fees, and possibly member surcharges or process fees, depending on the specifics of the case.

Can I represent myself in FINRA arbitration?

Yes, you can represent yourself, but many choose to hire an attorney with experience in securities arbitration due to the complexity of the process. Investors and industry professionals who choose to represent themselves do so at a substantial disadvantage, Wall Street firms typically retain experienced professional counsel to represent their interests.

How are arbitrators selected?

Arbitrators are selected through the Neutral List Selection System (NLSS), which provides a list of potential arbitrators. Both parties rank and strike names to agree on a panel.

What qualifications do FINRA arbitrators have?

FINRA arbitrators include attorneys, accountants, financial professionals, and public members who have undergone training and meet FINRA’s qualification standards.

How long does the arbitration process take?

The process typically takes 12-18 months from filing to the final award, but this can vary based on case complexity and scheduling. Preference may be given to investors that are seriously ill or elderly.

What is a prehearing conference?

A prehearing conference is a meeting between the parties and the arbitrators to discuss procedural issues, set a schedule, and address preliminary matters including final FINRA arbitration hearing dates.

What is discovery in arbitration?

Discovery is the exchange of documents and information between the parties to prepare for the hearing. It is more limited than in litigation.

What happens during the arbitration hearing?

During the hearing, both sides present evidence, call witnesses, and make arguments. The arbitrators then deliberate and render a decision.

Is the arbitration hearing open to the public?

No, arbitration hearings are private and confidential. Only the parties, their representatives, and the arbitrators may attend.

Can I settle my case before the hearing?

Yes, parties can settle at any time before the arbitrators render a decision, often through negotiation or mediation.

What is mediation in the context of FINRA arbitration?

Mediation is a voluntary process where a neutral mediator helps the parties negotiate a settlement. It is separate from arbitration and non-binding.

What happens if I lose in arbitration?

If you lose, the arbitrator’s decision is final and binding. There are limited grounds for challenging the award in court.

Can I appeal an arbitration decision?

Generally, you cannot appeal an arbitration decision. However, you can seek to vacate the award on very narrow grounds, such as arbitrator misconduct.

What types of disputes are resolved through FINRA arbitration?

Disputes include claims of fraud, breach of fiduciary duty, negligence, breach of contract, and other issues related to securities and investments.

How are damages determined in arbitration?

Damages are determined based on the evidence presented, including financial records, expert testimony, and the specifics of the case.

Can arbitrators award attorney’s fees?

Arbitrators can award attorney’s fees if provided for by law, contract, or if both parties request it.

How do I enforce an arbitration award?

An arbitration award can be enforced in court through a confirmation process, making it a judgment that can be collected.

What is expungement in FINRA arbitration?

Expungement is the process of removing information from a broker’s record on the Central Registration Depository (CRD) system. It is only granted under specific conditions.

What are the grounds for vacating an arbitration award?

Grounds for vacating an award include arbitrator bias, fraud, corruption, or misconduct, as well as exceeding their powers.

Are arbitration awards public?

Yes, arbitration awards are published on FINRA’s website, providing transparency and access to past decisions.

What is the role of the Office of Dispute Resolution?

The Office of Dispute Resolution administers arbitration and mediation cases, ensuring that the process runs smoothly and efficiently.

What is a Simplified Arbitration?

Simplified Arbitration is for cases involving claims of $50,000 or less, allowing for a quicker and less expensive resolution without a hearing.

Can I request an expedited hearing?

Yes, in certain circumstances, such as elderly or seriously ill parties, you can request an expedited hearing.

What is the role of an arbitrator?

An arbitrator acts as a neutral decision-maker, reviewing evidence, hearing testimony, and issuing a binding decision on the dispute.

How do I prepare for an arbitration hearing?

Preparation involves gathering evidence, preparing witnesses, and developing a clear case strategy to present to the arbitrators.

What types of evidence are admissible in arbitration?

Evidence can include documents, emails, financial records, expert reports, and witness testimony, subject to the arbitrators’ discretion.

Can I request documents from the other party?

Yes, through the discovery process, you can request relevant documents and information from the other party to support your case.

How does FINRA handle conflicts of interest with arbitrators?

FINRA requires arbitrators to disclose any potential conflicts of interest, and parties can object to arbitrators they believe are biased.

What happens if a party does not comply with discovery?

If a party does not comply, the other party can file a motion to compel, asking the arbitrators to order compliance and possibly impose sanctions.

What is a motion in arbitration?

A motion is a formal request for the arbitrators to make a ruling on a specific issue, such as compelling discovery or dismissing a claim.

Can I request interim relief in arbitration?

Yes, you can request interim relief, such as temporary restraining orders or injunctions, to preserve the status quo pending the final decision.

How are hearing locations determined?

Hearing locations are typically determined by the location of the claimant unless both parties agree to a different venue.

What is a telephonic or virtual hearing?

Telephonic or virtual hearings are conducted via phone or video conference, allowing parties to participate remotely.

How are arbitration awards paid?

Awards are typically paid by the losing party within 30 days of the decision, unless otherwise specified by the arbitrators.

What if the losing party does not pay the award?

If the losing party does not pay, you can seek enforcement through the courts, turning the award into a legally enforceable judgment.

Are there any limits on the types of claims I can bring in arbitration?

FINRA arbitration covers a broad range of claims related to securities, but there are some statutory and regulatory limits on certain types of claims.

Can I bring a class action in FINRA arbitration?

No, class actions are not permitted in FINRA arbitration. However, you can join other claimants in a single arbitration if the claims are similar.

What is the role of expert witnesses in arbitration?

Expert witnesses can provide specialized knowledge and opinions to help explain complex financial issues to the arbitrators.

How are hearing dates scheduled?

Hearing dates are scheduled based on availability of the parties and arbitrators, with consideration for the complexity of the case.

Can I request a different arbitrator if I believe one is biased?

Yes, you can challenge an arbitrator if you believe they have a conflict of interest or bias that affects their impartiality.

What is a “chairperson” in a FINRA arbitration panel?

The chairperson is the lead arbitrator who manages the procedural aspects of the case and ensures the hearing runs smoothly.

How does FINRA ensure fairness in arbitration?

FINRA has rules and procedures in place to ensure a fair and impartial process, including arbitrator training and disclosure requirements.

How do I learn more about the FINRA arbitration process?

For more information, you can visit FINRA’s website, contact their Office of Dispute Resolution, or consult with experienced attorneys like those at Bakhtiari & Harrison.

How can Bakhtiari & Harrison help with FINRA arbitration?

Bakhtiari & Harrison can assist with filing claims, responding, selecting arbitrators, discovery, hearings, and ensuring the best possible outcome through skilled representation and strategic advice.

Understanding FINRA Rule 2210 – Communications with the Public

The financial industry is subject to stringent regulations to ensure transparency, protect investors, and maintain ethical marketing and advertising standards. One of the key regulations in this space is FINRA Rule 2210, which governs how broker-dealers and their associated persons communicate with the public. The rule establishes guidelines to prevent misleading statements, ensure fair and balanced representations, and promote compliance with securities laws.

This article explores the purpose, requirements, implications, and best practices related to FINRA Rule 2210 to help firms create compliant and effective communications.

Table of Contents

What is FINRA Rule 2210?

FINRA Rule 2210 sets standards for broker-dealer communications, including advertisements, sales literature, and correspondence. The rule divides communications into three categories:

Retail communications: Any written or electronic communication distributed to more than 25 retail investors within a 30-day period.
Institutional communications: Communications intended for institutional investors such as banks, insurance companies, and investment advisors.
Correspondence: Written or electronic messages sent to 25 or fewer retail investors within a 30-day period.

Each category has specific review and approval requirements to ensure compliance with industry regulations and to prevent misleading or unbalanced representations.

Key Components of Rule 2210

The rule is designed to establish clear guidelines for how financial firms communicate with the public and ensure that investors receive accurate and transparent information.

1. Review and Approval Requirements

Firms must implement supervisory procedures to review and approve retail communications before distribution. A qualified principal must approve such materials to ensure compliance with regulatory standards. Institutional communications and correspondence have fewer pre-approval requirements but must still be subject to appropriate supervision.

2. Content Standards

Communications must adhere to specific content standards, including:

Information must be fair, balanced, and not misleading.
Statements must provide a sound basis for evaluating the facts.
Exaggerated, promissory, or misleading claims are prohibited.
Comparisons must be substantiated and fair.
Risks associated with products or services must be clearly disclosed.

3. Recordkeeping Requirements

Firms are required to maintain records of all communications with the public. These records must be retained for at least three years and be readily accessible for regulatory review.

4. Prohibitions on Misleading Information

The rule explicitly prohibits false, exaggerated, unwarranted, or misleading statements in all communications. Testimonials must be truthful, and statements about investment performance must not imply guarantees or certainty of future results.

5. Filing and Review with FINRA

Certain retail communications, particularly those related to mutual funds, variable insurance products, and publicly available investment analysis tools, must be filed with FINRA’s Advertising Regulation Department before use. FINRA may require modifications to ensure compliance.

Purpose of Rule 2210

The primary purpose of FINRA Rule 2210 is to promote transparency, fairness, and accuracy in financial communications. The rule is designed to:

Protect investors from misleading or deceptive advertising.
Ensure firms provide balanced and objective information about financial products and services.
Prevent false claims or exaggerated performance projections.
Encourage ethical marketing and sales practices within the securities industry.
Promote compliance with broader securities regulations and FINRA’s investor protection objectives.

Who Must Comply with Rule 2210?

All FINRA-registered broker-dealers and their associated persons must comply with Rule 2210 when communicating with the public. This applies to:

Registered representatives
Compliance officers
Marketing and advertising teams
Supervisory personnel responsible for content review

Failure to comply with this rule can lead to regulatory actions, fines, and reputational damage.

Consequences of Non-Compliance

Non-compliance with Rule 2210 can lead to significant regulatory and legal consequences, including:

1. Regulatory Sanctions

FINRA may impose fines, suspensions, or other disciplinary measures on firms that fail to follow communication standards.

2. Legal Liabilities

Firms that publish misleading or unbalanced communications may face investor lawsuits and regulatory enforcement actions.

3. Reputational Damage

Improper advertising or promotional materials can erode investor trust and harm a firm’s brand credibility.

4. Increased Regulatory Scrutiny

Firms with a history of non-compliance may be subject to more frequent audits and investigations by FINRA and other regulatory bodies.

Best Practices for Compliance with FINRA Rule 2210

To ensure compliance with FINRA Rule 2210, firms should implement best practices that align with regulatory expectations and investor protection goals.

1. Develop a Robust Compliance Review Process

Firms should establish a structured review process to evaluate communications before distribution. This includes implementing internal controls and requiring approval from a registered principal.

2. Provide Ongoing Training for Employees

Employees responsible for public communications should receive regular training on FINRA Rule 2210 and other relevant compliance requirements. Training should cover content standards, disclosure requirements, and risk mitigation strategies.

3. Maintain Clear and Transparent Records

Firms should ensure that all public communications are properly documented and stored for the required retention period. Recordkeeping systems should be organized and accessible for audits or regulatory requests.

4. Monitor and Audit Communications Regularly

Internal audits and monitoring procedures help firms identify potential compliance gaps. Firms should periodically review marketing materials and correspondence to ensure alignment with regulatory standards.

5. Use Compliance Technology and Automation

Leveraging compliance software and automated tools can help streamline the review and approval process, track recordkeeping requirements, and reduce human error.

6. Foster a Culture of Ethical Advertising

Creating a culture of transparency and ethical marketing practices encourages employees to prioritize investor protection and compliance over aggressive sales tactics.

FINRA Rule 2210 plays a critical role in ensuring fair and transparent communications within the financial industry. By following the rule’s guidelines, firms can provide investors with accurate, non-misleading information while maintaining compliance with industry regulations.

Failure to adhere to this rule can result in significant penalties, reputational harm, and legal consequences. Therefore, brokerage firms should prioritize compliance by implementing strong supervisory controls, training programs, and effective review processes.

Understanding and complying with FINRA Rule 2210 is not just about avoiding penalties—it is about maintaining investor confidence, ethical business practices, and long-term success in the financial industry. For more information contact Bakhtiari & Harrison.