What is FINRA Arbitration?
Financial Industry Regulatory Authority (FINRA) arbitration is similar to court. It is generally faster, less expensive and less complex than state or federal litigation. Nearly all commercial and investment contracts contain an arbitration clause. The U.S. Supreme Court has previously ruled that these arbitration clauses are binding and enforceable. This generally means the only way to bring a legal claim will be through arbitration.
In FINRA arbitration, the party bringing the claim is called the claimant. The party having the claim asserted against it is the respondent. To initiate a FINRA arbitration, the claimant must draft and file a Statement of Claims with FINRA. The parties to the dispute selects neutral third parties, called arbitrators from a FINRA provided list. The arbitrators act as the judges and will listen to the arguments set forth by the parties, study the testimonial and/or documentary evidence, and then render a decision, called an award. The award, is final and binding. When an arbitration case goes to a hearing, it can take up to 18 months for an award to be issued.
The size of the claim will determine how the arbitration process works. Claims involving more than $100,000 require an in-person hearing decided by a panel of three arbitrators, with one chairing the hearing. Smaller claims are decided by one arbitrator and the smallest—claims of up to $50,000—may be decided through a Simplified Arbitration Process, with the arbitrator deciding the case by reviewing all the materials presented by the parties without an in-person hearing.
FINRA Arbitration is as an alternative to the courts because it is devised as a prompt and inexpensive means of resolving complicated securities related issues. There are certain laws governing the conduct of an arbitration proceeding that must be considered by those planning to or are required to use arbitration to resolve their securities dispute.