FINRA Reminds Members About Requirements When Using Predispute Arbitration Agreements for Customer Accounts
Friday, April 23, 2021
On April 21, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 21-16 (Notice) to remind member firms about requirements when using predispute arbitration agreements for customer accounts.
FINRA published the Notice to remind member firms that when they use mandatory arbitration clauses in their customer agreements, they must follow the applicable FINRA Rules. The FINRA Rules: (1) establish minimum disclosure requirements regarding the use of arbitration clauses; (2) prohibit predispute arbitration agreements from including conditions that, among other things, limit or contradict FINRA Rules; and (3) prohibit class action claims in FINRA arbitration. Accordingly, FINRA Rules prohibit member firms from incorporating provisions that would prevent customers from bringing or participating in judicial class actions by adding waiver language into customer agreements (class action waivers) and prohibit member firms from enforcing arbitration agreements against members of a certified or putative class action.
The Notice urges member firms to take prompt steps to ensure their customer agreements fully comply with FINRA Rules and reminds member firms that if they fail to comply, they may be subject to disciplinary action.
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