FINRA arbitration and mediation provide an efficient alternative to litigation for investors, brokerage firms, and their registered representatives—arbitrators chosen by both sides of a dispute to issue final, binding decisions.
FINRA’s list selection algorithm excludes arbitrators with known conflicts of interest with member firms. Those conflicts are checked as part of the application process.
What is FINRA?
FINRA is an independent self-regulatory organization that writes rules for its members to follow in business. The United States is home to more than 3,394 securities firms and 612,457 registered representatives, all of which are under the watchful eye of our regulatory body.
If a dispute with a financial professional cannot be settled through direct negotiations or mediation, filing a claim in FINRA arbitration is a fast and cost-effective alternative to taking your case to court. The arbitration process is confidential and binding.
After the case is filed, FINRA will send each party a list of arbitrators to choose from. The parties may strike arbitrators from the list in a process similar to jury selection. During the arbitration hearing, the arbitrators will decide on an award, including if any costs or forum fees should be assessed against any of the parties and how to allocate those costs and payments.
Who Can File a Claim?
A person who believes that a broker or other financial professional violated FINRA’s securities laws can file a claim with FINRA. The alleged violation can involve any misconduct, including fraud or misrepresentation. Unlike court-related filings, arbitration proceedings are generally confidential and not made public.
When a person files an arbitration claim, they submit the required documents and pay the fee online through FINRA DR’s Arbitration Claims Portal. FINRA then sends the Claim Notification Letter containing the Claim Access Code to the named respondents (a firm or person against whom the claim is filed).
A respondent has 45 days to answer the claim. After receiving the response, the respondent representative like Kurta Law will get a case-specific email inviting them to sign up in DR for the related arbitration (the “Arbitration Case Register”), which gives them restricted access to three tabs of information: “Details,” “Documents,” and “Drafts & Submissions”). The response reps can then retrieve the case-specific Claim Service Packet.
What is the Process?
Once a claim is filed, an arbitration panel decides whether misconduct occurred and how much the individual investor should be compensated for losses. Once a decision, also known as an award, has been made, it is considered final and binding on all parties involved.
However, in rare cases, an appeal may be made. When a claimant submits a statement of claim and pays the necessary filing fee, FINRA will serve the claim on all respondents named in the news. The respondent must file a response to the claim within 45 days of receiving it.
FINRA then analyzes the case, looking at the size of the claims and how many arbitrators are needed. It will also send both sides lists of potential arbitrators with their background information. Each separately represented party may strike from the list of arbitrators they do not want within certain limits set by FINRA rules.
Both sides will exchange documents and participate in a discovery process in preparation for the hearing. Remember conversations with an arbitrator before or after the hearing can affect their decision, even if off the record.
Can I File a Claim Without a Lawyer?
Arbitration panels may consist of one or three arbitrators, varying based on the alleged damages. They hear the parties’ arguments and study both testimonial and documentary evidence. The arbitrators then issue a final decision, called an award, binding on all the parties.
The arbitration hearing usually takes place at a FINRA office or in the area of the state where the disputed transactions occurred. At the hearing, you, through your attorney, and the attorneys for the respondent will present your case. Like a court trial, you can question witnesses and argue during the hearing.
If you have a financial hardship, you can request a waiver of fees for your FINRA arbitration by providing the arbitrators and FINRA with supporting documentation such as tax returns, bank records, and pay stubs. The waiver applies to the filing fee, hearing session fee, and the chairperson’s honorarium.
What Are the Fees?
Most investors need to realize that tucked away in the fine print of their brokerage firm’s account agreements is an agreement to arbitrate disputes through FINRA. You may be entitled to compensation through this process if you have suffered significant financial losses.
Depending on the size of your claim, various fees are associated with FINRA arbitration. An initial filing fee ranges from $50 to $2,300. This non-refundable fee can be waived if you prove financial hardship. There are also hearing session fees that are assessed for each hearing.
In addition, the arbitrators who hear your case will be compensated. They also receive an honorarium for attending pre-hearing conferences and a daily fee if they are the chairperson of the hearing on the case’s merits. Other costs can include expert witness fees.
Can I Request a Waiver of Fees?
A party experiencing financial hardship may request a filing or arbitration fee waiver. Typically, a claimant must submit documents supporting economic hardship, such as tax returns, bank records, or pay stubs. FINRA rules provide that the arbitrators and the parties will review these requests on a case-by-case basis.
FINRA arbitration hearings generally involve three arbitrators (or one arbitrator if the claims total $100,000 or less, exclusive of interest and expenses) who hear arguments from both sides, study all testimonial and documentary evidence, and then render a decision known as an award. The award shall remain binding on the parties unless successfully challenged in court within a statutory time frame.
In addition to arbitration, FINRA also offers mediation as an alternative dispute resolution process. However, unlike arbitration, mediation is a voluntary process binding on the parties once the parties reach and sign a settlement agreement.