Independent Broker Dealer Consortium

FINRA Dispute Resolution Updates

FINRA recently issued a new fraud warning to member firms, highlighted certain changing rules and procedures for arbitrators, reminded arbitrators to stay current on their disclosures and offered up year-to-date statistics on dispute resolution. Here’s a summary.


In its ongoing efforts to advise member firms of new risks and new forms of fraud, FINRA issued an Information Notice warning of a new imposter scam. This one involves fraudsters impersonating FINRA personnel in order to obtain a firm’s confidential or other information. FINRA is urging firms to “verify the identity of [any] caller or sender before providing any information or responding to an email.”

Recent incidents include a firm receiving a call from an imposter using a phony FINRA telephone number and email who was seeking contact information of firm personnel. Other incidents concern suspicious calls made from outside the United States seeking sensitive information. FINRA reminded firms that it “does not use overseas telephone numbers or foreign email domains” and urged member firms to be wary of communications that do not end in or that contain attachments or embedded links. Further, FINRA recommends contacting a Regulatory Coordinator if any questions arise “regarding the legitimacy of any communication that purports to be from FINRA.”


A number of rule changes concerning procedures and fees were highlighted in the latest issue of the FINRA arbitration and mediation newsletter, The Neutral Corner.

Proposal for Small Claims Adjudications

In May, the SEC approved rule changes that would create a new option for small claims (less than $50,000) adjudications. Claimants will still have the option to proceed under current procedures, which allow for in-person hearings without time limits and permit questioning of opposing parties’ witnesses.

Claimants will now also have a new available option of a “Special Proceeding,” in which an arbitrator may hear the case by telephone conference call, (unless the parties agree to another method) and claimants have time limitations to present their cases (two hours for presentation, a half hour for rebuttal and closing). Arbitrators will also have time limits on follow-up questions (three hours). Under the new procedures, the parties may not question an opposing party’s witnesses or call an opposing party as a witness, and the hearing will be completed in one day with no more than two hearing sessions. The Special Proceeding is a format intended to quicken the pace of arbitrations and to reduce costs. The new rule is effective September 17, 2018. FINRA says it will offer training to arbitrators on the Special Proceeding.

Proposal on Late Cancellation Fees for Prehearing Conferences

A new FINRA rule change would impose fees for the late cancellation of a prehearing conference. The fees would be imposed if a party or parties to a FINRA arbitration cancel a scheduled conference on short notice (i.e., within three business days). In such circumstance, FINRA would issue a $100 per-cancellation fee per each arbitrator, and a $100 honorarium for each arbitrator that was scheduled to attend the conference. FINRA extended the time for further SEC action on this rule change until August 1, 2018.


The Neutral Corner published answers to several questions on disclosure obligations, and FINRA reminded arbitrators to update their disclosure reports (“ADRs”) regarding any activity on social media.

FINRA responded to one question by confirming that it proactively reviews ADRs and conducts internet searches “on Google, publicly available information in databases such as Lexis and state and federal court sites to ensure that required information has been disclosed on the ADR.” FINRA also stated that “for arbitrators who have CRD records, we compare the information in CRD against the ADR.” FINRA urged arbitrators to update their disclosure reports by providing current information to parties so as “to minimize the likelihood of future motions to vacate.”

As to social media, FINRA stated that “even if you no longer use the accounts [on Twitter, Linked In or any other social media] or have never posted information on them, you should disclose them.” FINRA expressed an intention to “alert parties upfront of any information available about arbitrators and let them determine whether they think it might affect an arbitrator’s ability to serve impartially.”

Finally, FINRA noted that “even if arbitrators are not currently assigned to cases, their disclosure reports may be sent to parties in their hearing locations during arbitrator selection.” As a result, FINRA asserted that “arbitrators are encouraged to review and affirm regularly the accuracy of their disclosure reports using the DR Portal.”


Also highlighted in the The Neutral Corner were some year-to-date trends deduced from FINRA’s published Dispute Resolution Statistics site. FINRA noted that from January through May 2018, there was a 40 percent increase in arbitration case filings compared to the same five-month period in 2017 (from 1,365 cases in 2017 to 1,908 cases in 2018). Claims initiated by customers also grew by 32 percent year over year. Intra-Industry cases increased by 54 percent year over year.  Topping the list of the 15 Controversy Types in Customer Arbitrations so far this year is Breach of Fiduciary Duty (997 cases, up from 714 same time, last year) followed by Suitability (870 cases, up from 606 as of May, 2017) and Misrepresentation (844 cases, up from 593 same time, last year.) Topping the list of the 15 Controversy Types in Intra-Industry Arbitrations though May of this year is Breach of Contract (141 cases, down from 175 same time, last year) followed by Promissory Notes (107 cases, down from 116 cases same time, last year) and Libel, Slander and Defamation (78 cases, up from 44 cases by this time last year).


In the last few weeks, FINRA has provided arbitrators with best practice recommendations, procedural rule reminders and updated dispute resolution statistics. Bates Group will continue to track these and other arbitration-related procedural developments.

Visit Bates Group’s Securities Litigation & Consulting Practice page and learn about Arbitrator Evaluator™, the next generation of intelligent analytics for identifying and selecting the best arbitrators for your customer and intra-industry cases.

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