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.

FINRA Rule 3110, Understanding the Supervision Benchmark

The financial industry is governed by strict regulations to ensure compliance, protect investors, and maintain fair market practices. One of the most critical regulations in this framework is FINRA Rule 3110, which establishes requirements for broker-dealers to implement robust supervisory systems. This rule ensures that firms oversee their associated persons and business activities effectively to prevent misconduct and regulatory violations.

This article explores the purpose, requirements, implications, and best practices related to FINRA Rule 3110, helping firms strengthen their supervisory frameworks and meet compliance standards.

What is FINRA Rule 3110?

FINRA Rule 3110 outlines the supervisory obligations of broker-dealers, requiring them to establish and maintain a system that ensures compliance with securities laws and FINRA regulations. The rule mandates that firms:

Design and maintain a supervisory system to monitor associated persons’ activities.
Implement written supervisory procedures (WSPs) that outline compliance protocols.
Assign qualified supervisors to oversee compliance efforts.
Conduct regular inspections of branch offices and remote locations.
Supervise correspondence, transactions, and customer interactions.

By adhering to these requirements, firms can identify risks, detect potential violations, and promote ethical conduct within the financial industry.

Key Components of Rule 3110

Rule 3110 establishes a structured approach to supervision through several core components that ensure thorough oversight and risk management.

1. Supervisory System

Firms must develop a structured supervisory system tailored to their business model and operational structure. This system should include:

Clearly defined roles and responsibilities for supervisors.
Mechanisms for monitoring customer transactions and employee activities.
Escalation procedures for potential compliance breaches.

2. Written Supervisory Procedures (WSPs)

Firms must create and maintain written supervisory procedures that detail their compliance policies. These procedures should cover:

Registration and licensing requirements.
Customer communication and marketing guidelines.
Complaint handling and escalation protocols.
Supervision of outside business activities and private securities transactions.

3. Branch Office Inspections

To ensure adherence to compliance standards, firms must conduct periodic inspections of their branch offices. The frequency and scope of these inspections depend on factors such as:

The nature and complexity of business conducted at the location.
The volume and type of transactions executed.
The history of compliance issues within the branch.

4. Transaction and Correspondence Review

Supervisors must oversee transactions and communications to detect potential red flags, such as unauthorized trading, fraudulent activities, or conflicts of interest. Firms should implement:

Trade surveillance programs to track and analyze transactions.
Approval processes for discretionary accounts.
Monitoring systems for email, chat, and other correspondence.

5. Supervision of Registered Representatives

Firms are responsible for overseeing the activities of their registered representatives to ensure they operate within compliance guidelines. This includes:

Conducting background checks and due diligence on new hires.
Providing ongoing training and professional development.
Reviewing personal trading activity and outside employment engagements.

Purpose of Rule 3110

The main objective of FINRA Rule 3110 is to uphold market integrity and investor protection by ensuring firms maintain effective supervisory systems. Specifically, the rule aims to:

Prevent fraud, misconduct, and regulatory violations.
Strengthen investor confidence by ensuring fair and ethical business practices.
Reduce risks associated with unsupervised trading and unauthorized transactions.
Foster accountability among supervisors and registered representatives.
Align firms’ compliance efforts with industry best practices and regulatory expectations.

Who Must Comply with Rule 3110?

All FINRA-registered broker-dealers and their associated persons must comply with FINRA Rule 3110. This includes:

Registered representatives
Compliance officers
Branch office managers
Supervisory personnel

Failure to comply with this rule can result in significant regulatory consequences, including fines, sanctions, and reputational damage.

Consequences of Non-Compliance

Non-compliance with FINRA Rule 3110 can lead to serious regulatory and legal consequences, including:

1. Regulatory Sanctions

FINRA may impose fines, suspensions, or even expulsion from the financial industry for firms that fail to establish adequate supervisory systems.

2. Legal Liabilities

Firms that do not properly oversee their employees may be held legally responsible for violations, leading to lawsuits and financial losses.

3. Reputational Damage

Poor supervision and compliance failures can damage a firm’s reputation, eroding client trust and affecting business relationships.

4. Increased Regulatory Scrutiny

Firms with a history of non-compliance may face heightened scrutiny from FINRA, leading to more frequent audits and enforcement actions.

Best Practices for Compliance with Rule 3110

To comply with FINRA Rule 3110 effectively, firms should implement best practices that enhance their supervisory frameworks and mitigate risks.

1. Develop a Robust Compliance Program

Firms should create and maintain a comprehensive compliance program that includes:

Clearly defined policies and procedures.
Dedicated compliance personnel and resources.
Regular updates to reflect regulatory changes.

2. Leverage Technology for Supervision

Using compliance technology and surveillance tools can enhance monitoring capabilities. Automated systems can help track trading activity, detect anomalies, and manage recordkeeping efficiently.

3. Provide Ongoing Training

Supervisors and registered representatives should receive regular training on regulatory updates, compliance expectations, and ethical business practices.

4. Conduct Regular Internal Audits

Firms should perform internal audits and risk assessments to identify potential weaknesses in their supervisory systems and implement necessary improvements.

5. Maintain Comprehensive Records

Keeping detailed records of supervisory activities, inspections, and compliance reviews is essential for demonstrating adherence to Rule 3110 during regulatory examinations.

6. Foster a Culture of Compliance

Creating a culture that prioritizes compliance and ethical behavior encourages employees to adhere to best practices and report potential violations proactively.

FINRA Rule 3110 is a cornerstone of regulatory compliance, ensuring that broker-dealers maintain effective supervisory systems to protect investors and uphold market integrity. By implementing strong oversight mechanisms, firms can mitigate risks, prevent misconduct, and demonstrate a commitment to ethical business practices.

Failure to comply with Rule 3110 can result in severe penalties, legal liabilities, and reputational harm. Therefore, brokerage firms should prioritize supervision by establishing robust compliance programs, leveraging technology, and continuously improving their supervisory frameworks.

Understanding and adhering to FINRA Rule 3110 is essential for maintaining transparency, accountability, and trust within the financial industry. For more information contact us.