Summary of Keypoints

• FINRA arbitration provides a structured alternative to court litigation: Governed by the FINRA Code of Arbitration Procedure, the process covers all stages from filing a statement of claim and arbitrator selection to hearings and final awards, typically resolving cases within 12–18 months.
• Key procedural stages shape case outcomes: Critical phases include the 45-day response deadline, strategic arbitrator selection, the initial pre-hearing conference, case-specific discovery, limited motion practice, evidentiary hearings, and issuance of a written award within 30 days after the hearing.
• Arbitrators have broad authority but follow defined rules: Panels (usually one or three arbitrators) manage discovery, rule on motions, admit evidence, issue subpoenas, and determine remedies, with customer dispute expungement requiring a unanimous three-arbitrator decision.
• Expungement remains available under strict standards: FINRA Rule 2080 governs customer dispute expungement, requiring proof of factual impossibility, lack of involvement, or falsity of claims, while other expungement types depend on different rules and timing considerations.
• Arbitration practices continue to evolve: Virtual hearings, digital evidence, cybersecurity concerns, and emerging dispute areas are reshaping FINRA arbitration, making ongoing awareness of rule updates and procedural trends essential for financial professionals.

FINRA arbitration rules guide the process of settling disputes in the financial industry. These rules are set by the Financial Industry Regulatory Authority (FINRA) . FINRA arbitration offers a quicker and often less expensive alternative to traditional court litigation for resolving financial industry disputes.

The FINRA Code of Arbitration Procedure outlines the steps and requirements for arbitration cases. It covers everything from filing a claim to selecting arbitrators and conducting hearings.

The Framework of FINRA Arbitration

While often characterized as an alternative to traditional litigation, FINRA Arbitration represents a distinct process with its own complexities and considerations. Financial professionals should approach arbitration with a thorough understanding of both its advantages and limitations within the context of their practice and their case.

Navigating the Arbitration Process

Initial Filing and Response

The arbitration procedure begins with filing a statement of claim, which requires careful preparation and consideration. This initial filing establishes the foundation for the entire proceedings and should comprehensively outline the relevant facts, legal theories, and requested relief. Once filed, respondents have 45 days from receiving notice to provide their answer, which should address each allegation.

Arbitrator Selection

The selection of arbitrators is a crucial phase in the process, as industry experience with compensation structures, recruiting practices, and Form U5 protocols can substantially influence case outcomes. Each potential arbitrator’s professional background, previous decisions, and industry experience merit thorough evaluation. 

Initial Pre-hearing Conference

Following arbitrator selection, the panel conducts an initial pre-hearing conference, typically within 30 days. During this conference, the arbitrators and parties establish the discovery schedule, motion deadlines, and hearing dates. This conference sets the procedural framework for the arbitration.

Discovery Process

Discovery in arbitration is very case specific, but may  focus on personnel files, compensation records, communications regarding termination decisions, and Form U5 filing documentation. Advisors should work with counsel to gather and preserve relevant employment records, including client communications, performance reviews, and compensation statements. 

Motion Practice

Throughout the arbitration, parties may file various motions addressing procedural and substantive issues. Common motions include requests to compel discovery, motions to dismiss, and motions in limine to exclude certain evidence. Dispositive motions, which seek to resolve the case before a hearing, face strict limitations under FINRA rules and require arbitrator permission before filing.

Pre-hearing Submissions

Approximately twenty days before the hearing, parties typically submit pre-hearing briefs outlining their positions, key evidence, and relevant legal authorities. Parties also exchange witness and exhibit lists, allowing for proper preparation and potential objections.

The Evidentiary Hearing

The final hearing functions similarly to a trial but with more flexible evidentiary rules. Parties present opening statements, examine witnesses, introduce exhibits, and deliver closing arguments. Hearings may last several days depending on case complexity. The panel maintains broad discretion in conducting the hearing and admitting evidence.

Award and Post-hearing Proceedings

Arbitrators typically issue their award within 30 days following the hearing’s conclusion. The award document states the panel’s decision and any monetary or non-monetary relief granted. 

Timeline Considerations

A typical FINRA arbitration from filing to award spans approximately 12-18 months, though this depends on case complexity and scheduling. Complex cases may take longer. 

Key timeline markers include:

• The initial answer due within 45 days of service
• Arbitrator selection completed within 90 days of the answer
• Initial pre-hearing conference held within 30 days of panel appointment
• Discovery completed according to the schedule set at the initial pre-hearing conference
• Evidentiary hearing typically scheduled 9-12 months from filing
• Award issued within 30 days of hearing conclusion

Understanding this timeline helps parties manage expectations and allocate resources appropriately throughout the process.

Understanding FINRA Record Expungement

Record expungement through FINRA arbitration provides financial professionals an avenue to address potentially damaging information on their Central Registration Depository (CRD) records. The process requires careful navigation and substantial preparation, as FINRA maintains specific standards for granting expungement requests.

For customer dispute expungements, FINRA Rule 2080 establishes fundamental criteria for consideration. The rule recognizes three primary bases: factual impossibility or clear error in the claim or allegation, lack of involvement in the alleged investment-related sales practice violation, or the false nature of the claim or allegation. 

However, it’s important to note that other types of expungement requests may be permitted under different rules, depending on the specific circumstances of each case. The applicable rules and requirements will vary based on whether the expungement relates to customer disputes, employment matters, criminal disclosures, or other types of disclosures.

The timing of expungement requests is also critical. Professionals may pursue expungement during the underlying arbitration or through separate proceedings. Each approach presents distinct advantages and challenges that merit evaluation within the context of individual circumstances. 

Maintaining Professional Practice Through FINRA Processes

FINRA arbitration represents a significant aspect of securities industry practice. The process allows for strategic engagement that can protect professional interests effectively. Understanding procedural nuances while maintaining thorough preparation enables financial professionals to approach arbitration productively.

Success in FINRA arbitration extends beyond dispute resolution to encompass practice protection and professional continuity. Whether addressing customer complaints, pursuing expungement, or managing employment matters, measured and professional engagement supports favorable outcomes. 

The arbitration system continues to evolve, requiring ongoing attention to procedural changes and emerging trends. Financial professionals benefit from maintaining current knowledge while adapting their practices to address new requirements. This preparation supports both immediate dispute resolution and long-term professional success.

Arbitration Panel and Arbitrator’s Authority

FINRA arbitration panels have broad powers to resolve disputes. Arbitrators must follow specific guidelines while maintaining impartiality and avoiding conflicts of interest.

FINRA arbitration panels typically consist of one or three arbitrators. For claims under $100,000, a single arbitrator hears the case. Claims over $100,000 use a three-person panel. As mentioned above, a customer dispute expungement action requires a three-arbitrator panel. 

The Neutral List Selection System randomly generates a list of potential arbitrators. In three-arbitrator panels, two are public arbitrators and one is a non-public arbitrator with industry experience. This mix aims to balance expertise and neutrality.

Arbitrator’s Guide to Proceedings

FINRA provides an Arbitrator’s Guide to help arbitrators understand their role and responsibilities. This guide covers key aspects of the arbitration process.

Arbitrators have significant authority in FINRA proceedings. They can:

• Order document production
• Decide on motions
• Rule on the admissibility of evidence
• Issue subpoenas
• Determine the final award

Arbitrators must manage the hearing process fairly and efficiently. They should allow each party to present their case while maintaining control of the proceedings.

FINRA Arbitration Outcomes and Awards

FINRA arbitration can result in different outcomes for investors and firms. The arbitrators decide awards based on the evidence presented during hearings. Parties may face sanctions for misconduct, and awards can be challenged in limited situations.

FINRA Arbitration Awards

FINRA arbitration awards are final decisions made by arbitrators. They outline the outcome of the case and any monetary compensation. Awards are in writing and, in customer dispute expungement cases, must be unanimous. For other types of cases, different voting requirements may apply.

Sanctions and Remedies

Arbitrators can impose sanctions for misconduct during arbitration. These may include:

• Monetary penalties
• Dismissal of claims
• Barring evidence or testimony

Sanctions aim to ensure fair proceedings and deter abuse of the arbitration process.

Common remedies in FINRA arbitration include:

• Compensatory damages
• Punitive damages (in rare cases)
• Attorneys fees and costs
• Account transfers
• Expungement of broker records

Arbitrators have flexibility in crafting remedies to address the specific circumstances of each case. They strive to provide fair outcomes based on the facts and evidence presented.

Special Considerations in FINRA Arbitration

FINRA arbitration involves unique aspects that parties should be aware of. These include the selection of hearing locations, specific rules for broker and firm disputes, and procedures for customer complaints.

Hearing Location and Logistics

FINRA offers hearing locations across the United States. The choice of venue can impact travel costs and witness availability. Parties can request a specific location, but FINRA makes the final decision.

Virtual hearings are now an option. This allows for remote participation, reducing travel expenses. However, it may affect how evidence is presented and witness credibility is assessed.

FINRA provides conference rooms and administrative support at hearing locations. Parties must arrange for their own equipment, such as projectors or video players. It’s crucial to test all technology before the hearing starts.

Broker and Brokerage Firm Disputes

Disputes between brokers and their firms follow specific FINRA rules. These often involve employment issues, such as compensation or termination.

The discovery process can be extensive. Firms must produce relevant documents, including emails and internal memos. Brokers may need to provide personal financial records.

Arbitrators in these cases are usually familiar with industry practices. They can better understand complex compensation structures or compliance issues.

Evolution in Arbitration Practices

The arbitration landscape continues to develop in response to industry changes and technological advancement. Virtual hearings have gained prominence, requiring adaptation in presentation and communication strategies. Cybersecurity considerations and digital communication records have assumed greater importance in contemporary proceedings. Additionally, disputes involving environmental, social, and governance factors have emerged as a growing concern.

FINRA Arbitration Frequently Asked Questions

How does the FINRA arbitration process work?

FINRA arbitration is an alternative to court for resolving disputes. Parties submit their case to neutral arbitrators who hear arguments and evidence. The arbitrators then make a binding decision.

FINRA’s Dispute Resolution Portal allows case participants to view information and submit documents online. This streamlines the process.

What are the FINRA arbitration eligibility requirements?

FINRA arbitration is available for disputes between investors and brokers or between industry professionals. Cases must involve securities-related issues.

There may be time limits for filing certain claims. Parties should consult with an attorney for specific eligibility rules. 

What is the standard timeline for a FINRA arbitration case?

FINRA arbitration typically takes 12-18 months from filing to decision. However, timelines can vary based on case complexity and scheduling.

Key phases include filing, arbitrator selection, discovery, and hearings. FINRA provides detailed timelines in its Arbitrator’s Guide.

What kind of relief can be awarded in FINRA arbitration?

Arbitrators can award monetary damages, specific performance, or other remedies. There are no set limits on award amounts.

In some cases, arbitrators may also order sanctions for rule violations or failure to cooperate in the process.

How does FINRA ensure neutrality and fairness in arbitration proceedings?

FINRA takes several steps to maintain fairness. Arbitrators must disclose potential conflicts of interest. Parties can challenge arbitrators for cause.

FINRA also provides arbitrator training and oversight. The National Arbitration and Mediation Committee makes recommendations to improve the arbitration process.

HLBS Law Team