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FINRA Releases Official Guidance for Adviser Arbitration Program

private fund attorney NYCFINRA has released official guidance to investments advisers about the availability of its arbitration program. As discussed in a prior post, the SRO has recently opened its arbitration program to investment advisers who are not FINRA members.

The FINRA guidance indicates that the parties must meet the following conditions in order to participate:

  • The adviser and investor submit a post-dispute agreement to arbitrate.
  • The adviser or other parties agree to pay all arbitration surcharge fees.
  • The investor files a special written submission agreement to submit the dispute to FINRA Dispute Resolution that is signed by all parties to the arbitration after the events occurred that gave rise to the underlying dispute.

In the special submission agreement, the parties must acknowledge that:

  • FINRA cannot enforce awards entered against non-member advisers and/or their employees. Therefore, prevailing parties may enforce awards in a court of competent jurisdiction pursuant to applicable state or federal law.
  • FINRA may bar the IA from the forum in future cases if an IA fails to pay any award, settlement agreement, or FINRA fees.
  • FINRA and its arbitrators and mediators will be held harmless from liability arising in connection with the resolution of the parties’ dispute.
  • Disputes involving IAs will be administered in accordance with the SEC approved FINRA Codes of Arbitration Procedure.
  • The final award will be made publicly available.

FINRA has also indicated that it will accept industry disputes between non-member IAs and their employees on a voluntary, case-by-case basis if the parties meet the above conditions.

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