What does the FINRA arbitration process look like and why you shouldn’t go it alone

As a broker-dealer or financial services firm, it is important to understand the Financial Industry Regulatory Authority (FINRA) investigation and arbitration process. Understanding this process can help your firm better navigate any potential disputes that may arise with clients or other industry members.

FINRA Investigation Process

When a potential violation of FINRA rules or securities laws is identified, FINRA may begin an investigation. The investigation process can take several months to complete, and may include interviews with individuals, document review, and other forms of information gathering.

If FINRA determines that a violation has occurred, it may initiate disciplinary proceedings against the firm or individual. Depending on the nature of the violation, disciplinary action can range from a simple fine to suspension or revocation of a license.

It is important for broker-dealers and financial services firms to cooperate fully with any FINRA investigations. Failure to do so can result in additional sanctions or penalties.

FINRA Arbitration Process

In addition to investigating potential violations, FINRA also provides a dispute resolution process through its arbitration forum. The arbitration process is an alternative to traditional litigation, and can be faster and more cost-effective than going to court.

Arbitration is typically initiated by a claimant filing a statement of claim with FINRA. The statement of claim must include a description of the dispute, the amount of damages sought, and any supporting documentation.

Once the statement of claim is filed, the respondent has a set period of time to respond. The respondent's answer should address each allegation in the statement of claim and may include counterclaims against the claimant.

The arbitration panel is composed of one to three arbitrators, depending on the size and complexity of the case. The arbitrators are typically individuals with experience in the securities industry, and are selected by FINRA.

The arbitration hearing is similar to a trial in court, with each side presenting evidence and witnesses to support their position. After the hearing, the arbitrators will render a decision, which is binding on both parties.

While arbitration is generally faster and less expensive than traditional litigation, it is important for broker-dealers and financial services firms to carefully consider the pros and cons before deciding to go through arbitration. In some cases, the lack of an appeals process and limited discovery may be a disadvantage.

If your firm is facing a potential investigation or arbitration, it is important to work with experienced legal counsel who can guide you through the process. An experienced attorney can help you understand your rights and responsibilities, and work to protect your firm's interests. Contact our legal team today! With experience both working with FINRA and as a representative for RIAs and broker-dealers, our team has the expertise to get the best outcome for you and your firm. Drop a comment below or reach out via email.

By understanding the FINRA investigation and arbitration process, you can help your firm stay on the right side of regulatory requirements, and better serve your clients.