The Financial Industry Regulatory Authority Inc. (FINRA), is launching a wide-ranging consultation on possible changes to its primary mechanism for resolving disputes between the industry and investors, its arbitration system.
The U.S. self-regulatory organization noted that previous consultations aimed at reviewing its rules, modernizing requirements, and reducing needless regulatory burdens, have raised a number of issues with its arbitration forum. As a result, it’s now undertaking a focused review of the mechanism — including its use for resolving disputes between industry firms, and for dealing with disputes involving retail clients.
Among other things, the consultation seeks feedback on the use of clauses that require customers to address disputes through arbitration, whether certain claims should have different procedural requirements, and if customers should have more freedom to opt for litigation over arbitration.
For intra-industry disputes, it’s considering whether to allow firms to opt out of using FINRA’s arbitration forum and to permit them to resolve disputes with other mechanisms too.
The consultation also contemplates changes to eligibility requirements, such as the six-year limitation period, and how it should operate; reforms to the process for dealing with motions to dismiss a claim, modernizing discovery rules and revising case management processes. It’s also weighing changes to the composition of its arbitrator roster, arbitrator standards, qualifications, definitions and training.
Further, it’s considering whether to continue allowing arbitrators to award punitive damages — and, if it should cap those kinds of damages, or adopt new safeguards for cases that involve awarding punitive damages.
Finally, the consultation contemplates requiring “explained decisions” in all cases to increase transparency and improve the quality and consistency of decision-making. It’s also considering possible measures to enhance the enforcement of unpaid awards.
Alongside these specific issues, FINRA is also open to feedback on any other issues to do with its arbitration procedures, rules, and guidance.
The deadline for providing feedback is May 1.