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.

10 Foolproof Steps to Avoid FINRA Disciplinary Action

FINRA disciplinary actions can seriously affect financial advisors, compliance officers, and investors. To help you avoid trouble, we’ve compiled this guide with ten foolproof steps to avoid potential FINRA disciplinary actions. Whether you are a financial advisor, a compliance officer, or an investor, these steps will help you navigate FINRA’s rules and regulations and maintain a good standing in the financial industry.

Introduction

Overview of FINRA Disciplinary Actions

FINRA (Financial Industry Regulatory Authority) oversees brokerage firms and their registered representatives. Its job is to protect investors and ensure fair markets. When someone breaks FINRA’s rules, they can face disciplinary actions like fines, suspensions, or even being banned from the industry. Understanding these actions and their impact is crucial for anyone in finance.

Importance of Taking Preventative Measures

Taking steps to avoid disciplinary actions can save your career and reputation. Being proactive and diligent helps ensure that you follow FINRA’s rules and regulations.

Step 1: Understand FINRA Rules and Regulations

Overview of FINRA Rules and Regulations

FINRA has many rules that cover how financial professionals should act. These rules include how you handle sales, trades, and client information.

Familiarize Yourself with the Code of Conduct

The FINRA Code of Conduct sets the ethical standards for financial advisors. Make sure you know and follow these standards.

Stay Updated on Any Changes or Updates

FINRA’s rules can change. Stay informed by subscribing to FINRA updates, attending industry conferences, and participating in training programs.

Step 2: Comply with All Reporting Requirements

Understand Reporting Requirements for Your Firm

Each firm has specific reporting rules set by FINRA. Know what reports you need to file and when they are due.

Ensure Timely and Accurate Reporting

Reports must be accurate and filed on time. Late or incorrect reports can lead to disciplinary actions. Double-check your work before submitting reports.

Maintain Proper Documentation

Keep detailed records of all transactions, communications, and filings. Good documentation helps show that you are following the rules.

Step 3: Implement a Strong Compliance Program

Develop a Comprehensive Compliance Program

Create policies and procedures that cover all aspects of FINRA’s rules. Make sure these are well-documented and easy to access.

Regularly Review and Update Policies and Procedures

Review your compliance program regularly and update it as needed. This ensures that it stays current with FINRA’s rules.

Provide Ongoing Training for Employees

Train your employees regularly to keep them informed about regulatory requirements and internal policies.

Step 4: Monitor and Supervise Employees

Establish a System for Monitoring and Supervising Employees

Set up a system to monitor your employees’ activities. This helps catch any potential issues early.

Regularly Review Trading and Communications

Check your employees’ trading activities and communications regularly. This helps ensure they follow FINRA’s rules.

Address Any Potential Red Flags or Violations

If you spot any potential issues, address them immediately. Investigate and take corrective action if needed.

Step 5: Maintain Accurate and Complete Records

Keep Detailed Records of All Transactions and Communications

Good recordkeeping is essential for compliance. Keep detailed and accurate records of all your activities.

Ensure Records Are Accurate and Up-to-Date

Regularly check your records to make sure they are accurate and current. Correct any mistakes promptly.

Implement a Secure Storage System

Store your records securely to protect sensitive information.

Step 6: Communicate Openly with FINRA

Maintain Open and Honest Communication with FINRA

Be transparent with FINRA. Open and honest communication shows that you are committed to following the rules.

Promptly Respond to Any Inquiries or Requests

Respond to FINRA inquiries quickly and accurately. Delays or incomplete responses can lead to disciplinary actions.

Cooperate with Any Investigations

Cooperate fully if you are investigated. Provide all requested information and follow FINRA’s instructions.

Step 7: Stay Informed and Educated

Stay Updated on Industry News and Developments

Keep up with the latest news and trends in the financial industry. This helps you stay aware of any changes that might affect your work.

Attend Conferences and Training Sessions

Participate in conferences and training sessions to learn more about regulatory changes and best practices.

Network with Other Professionals

Networking with peers can provide valuable insights and support. Join professional associations and engage with other financial professionals.

Step 8: Address Any Complaints or Violations Immediately

Take Any Customer Complaints or Violations Seriously

Customer complaints can signal compliance issues. Take all complaints seriously and investigate them thoroughly.

Investigate and Address Issues Promptly

Address issues quickly to prevent them from escalating. Conduct a thorough investigation and take corrective action if needed.

Implement Necessary Changes to Prevent Future Incidents

Learn from past issues to improve your processes. Implement changes to prevent similar incidents in the future.

Step 9: Seek Professional Guidance When Needed

Consult with a Legal or Compliance Professional

When in doubt, seek professional advice. Legal and compliance professionals can provide expert guidance on regulatory requirements and best practices.

Get Advice on Potential Risks and Best Practices

Regular consultations with professionals can help identify potential risks and develop strategies to mitigate them.

Address Any Concerns or Questions

Don’t hesitate to ask questions or seek clarification on regulatory matters. Addressing concerns promptly can prevent future compliance issues.

Step 10: Maintain a Culture of Compliance

Promote a Culture of Compliance Within Your Firm

A strong compliance culture starts at the top. Promote a culture of compliance by setting a positive example and encouraging ethical behavior.

Lead by Example and Encourage Ethical Behavior

Leadership plays a crucial role in fostering a compliance-oriented culture. Lead by example and encourage all employees to adhere to ethical standards.

Regularly Review and Improve Processes

Continuous improvement is key to maintaining compliance. Regularly review your processes and make necessary improvements to stay ahead of regulatory changes.

Required Questions

What is FINRA and what is its role in regulating the financial industry? FINRA oversees brokerage firms and their registered representatives to protect investors and ensure fair markets.
What types of actions can result in a FINRA disciplinary action? Actions such as fraud, unauthorized trading, and failure to supervise can lead to disciplinary actions.
How does a FINRA disciplinary action differ from a criminal or civil action? FINRA disciplinary actions are regulatory and administrative, while criminal charges involve violations of criminal law and are prosecuted by governmental authorities.
Can I be held personally liable for a FINRA disciplinary action? Yes, individuals can be held personally liable and face fines, suspensions, or bans from the industry.
What is the process for responding to a FINRA investigation? Respond promptly, provide requested information, and cooperate fully with the investigation.
How long does a FINRA investigation typically last? The duration varies but typically lasts several months.
Do I need to hire a lawyer to represent me in a FINRA disciplinary action? It is advisable to hire a lawyer to ensure proper representation and protection of your rights.
What is the likelihood of successfully avoiding a FINRA disciplinary action? By following compliance steps and seeking professional guidance, the likelihood of avoiding disciplinary actions increases significantly.
Are there any common mistakes that can increase the likelihood of a FINRA disciplinary action? Common mistakes include failing to report accurately, not keeping proper documentation, and not addressing customer complaints promptly.
Can I appeal a FINRA disciplinary action if I disagree with the outcome? Yes, you can appeal to FINRA’s National Adjudicatory Council, and further to the SEC and U.S. Courts of Appeals.
What are the potential penalties for a FINRA disciplinary action? Penalties can include fines, censures, suspensions, and permanent bans from the industry.
Will a FINRA disciplinary action show up on my public record? Yes, disciplinary actions are reported on the Central Registration Depository (CRD) system and can be accessed through BrokerCheck.
How can I maintain compliance with FINRA rules and regulations to avoid disciplinary action? Follow the ten steps outlined in this guide to maintain compliance and avoid disciplinary actions.
Are there any resources or trainings available to help me stay updated on FINRA regulations? Yes, FINRA offers resources and training programs to help you stay informed about regulations and best practices.
Can I still work in the financial industry if I have a FINRA disciplinary action on my record? It depends on the severity of the action. Some sanctions may limit your ability to work in the industry.

Importance of Following These Steps

Following these ten steps can significantly reduce the risk of FINRA disciplinary actions. Proactive compliance measures protect your career, your firm, and your clients.

Potential Consequences of Non-Compliance

Non-compliance can lead to severe consequences, including fines, suspensions, and reputational damage. Avoid these pitfalls by adhering to FINRA regulations and implementing strong compliance programs.

Final Tips for Avoiding FINRA Disciplinary Action

Stay informed, be proactive, and seek professional guidance when needed. By following these foolproof steps, financial advisors, compliance officers, and investors can navigate the regulatory landscape with confidence and maintain their professional integrity.