United States: FINRA Proposes Amendments To Arbitration Procedures Involving Inactive Members

FINRA proposed changes to its Code of Arbitration Procedure for Customer Disputes to expand a customer's options related to arbitration claims in the event that a firm or associated person becomes inactive before a claim is filed or during a pending arbitration. FINRA also requested comments on those changes.

In a Regulatory Notice, FINRA explained that the recovery of arbitration awards is often difficult if respondents to a claim are no longer in business. To expand customer options in such scenarios, FINRA is proposing to allow a customer to withdraw a claim that is filed where (i) a firm becomes inactive during pending arbitration or (ii) an associated person becomes inactive before a claim is filed or during a pending arbitration. The proposal would also allow a customer to (i) amend pleadings upon learning that a firm or associated person becomes inactive, (ii) postpone hearings in certain scenarios upon learning that a firm or associated person becomes inactive (if FINRA issues a notification within 60 days of a hearing date), (iii) pursue default proceedings against a terminated associated person regardless of how long such person has been terminated and (iv) receive a full refund for filing fees if, upon learning that a firm or associated person becomes inactive, the customer chooses to withdraw the case.

FINRA is requesting comments on any aspect of the proposal, and has provided specific questions for consideration in the Regulatory Notice. Interested parties must submit comments by December 18, 2017.