The Financial Industry Regulatory Authority offers investors and brokers a way to resolve controversies between a client and the firm regarding investments or, in case of brokers, employment related disputes. FINRA offers two distinct options, arbitration and mediation, that are typically faster and less expensive than traditional litigation options.
Filing for a dispute resolution
If an investor believes their broker or brokerage firm has engaged in misconduct, they can file a request for mediation or file an arbitration claim directly with FINRA. It must be filed within six years of the alleged broker misconduct.
Dispute resolution vs. investor complaint
Filing a FINRA complaint is different than filing for a dispute resolution. Indeed, one can file an investor complaint through FINRA’s Investor Complaint Center (“ICC”), in addition to resolving their monetary dispute through mediation or arbitration.
The ICC is to let FINRA know about potential fraud and misdeed, but the dispute resolution process is to recover damages, like securities and money. Both can be done simultaneously, or an investor can opt to do one or the other, depending on their situation.
Arbitration
Arbitration is as close to going to court as one can get without actually going to court. It is designed to be cheaper, less complex, less rule-intensive and based more equity based and speedier than traditional litigation. In the process, the parties select a neutral third party or parties as their arbitrator(s) to resolve the dispute.
The neutral person(s) acts as the “judge.” Their decision is called an award, and it is final and binding.
SEC-approved forum
SEC-approved rules govern arbitration, and once the arbiter has made their ruling, it cannot then be taken to court. The arbiter or panel of three arbiters listens to arguments and studies evidence and testimony from both sides. Then, after deliberation, they decide, which can take up to 16 months, depending on the nature of the case.
For cases of $100,000 or more, an in-person arbitration is required, as is a three-person arbitration panel. Claims up to $100,000 can be done through a simplified process without the need for an in-person process and decided on paper by a single arbitrator.
Mediation
Mediation is another option that is much more flexible than arbitration, and it can be used at any time before arbitration begins. During this process, an independent, neutral third-party works with the parties to find a mutually agreeable solution, if there is one.