Ch 2 S2 Finra dispute proceures Flashcards
FINRA DISPUTE PROCEDURES
COPY OF THE FINRA MANUAL IN EACH BRANCH
OFFICE OR AVAILABLE FOR ONLINE ACCESS
STANDARD COMPLAINT FORM
• if a customer believes there was a violation of
FINRA rules, he can file a Standard Complaint
Fonn; complaint is forwarded to the District
Hearing Panel (formerly known as the District
Business Conduct Committee - DBCC)
• each clearing member must forward any written
customer complaint received by the clearing
member regarding a14n introducing member or
its associated persons to the :
introducing broker-dealer;
introducing member’s DEA; and
customer, acknowledging receipt of the
complaint, and names of the persons to
whom the complaint was forwarded
• once complaint is filed, the Code of Procedure
comes into play
NOTE: if the District Hearing Panel or the
National Adjudicatory Council receives
information that leads either to believe that a
violation has occurred, they, too, can file a
complaint
• to investigate any complaint, FINRA has the
right to:
require member to report orally or in writing
on the matter
investigate the books and records of the
member
• a member cannot refuse FINRA requests, as it
would be subject to FINRA penalties
, FlNRA can compel associated persons and
member fim1s to provide documents, testimony,
and responses in connection with investigations,
complaints, exams, and adjudicatory
proceedings
to ensure data security, FINRA requires that
electronic infonnation submitted be
encrypted; and the data can only be
accessible with a “confidential process or
key” which is sent separately from the
encrypted information itself
FINRA DISPUTE PROCEDURES
Penalties for Violations:
censure
fines
suspension
expulsion
If FINRA Suspends or Expels
it notifies:
• FINRA membership
• news media through a news release
the member is NOT allowed to be an
associated member with any firm during this
time and thus cannot be paid for transactions
effected during the suspension
• the member is treated as the “public”
note, though, FINRA could modify the
terms of the person’s suspension
• i.e. a supervisory principal might be
suspended for “failure to supervise”
only and, thus, could still be
employed as a registered rep or in a
clerical capacity
• once the suspension is over, that
person can be employed as a
supervisor again
FINRA CODE OF PROCEDURE
details the process for handling grievances against
member firms and associated persons
District Hearing Panel receives Standard
Complaint and directs firm to respond in writing
within 25 calendar days
PRE-HEARING CONFERENCE
DISTRICT HEARING PANEL
DISTRICT HEARING PANEL RENDERS A DECISION
MINOR COMPLAINTS
SUMMARY SUSPENSION
District Hearing Panel receives Standard
Complaint and directs firm to respond in writing
within 25 calendar days
• if the complaint is amended, the time to answer
is extended for 14 calendar days
• if no answer is received, a second notice is sent,
and a 14 calendar extension is granted
• ifno response is received on 2nd notice,
allegations are assumed to be true
once response is filed. copy is sent to complainant
f illegal activities are occurring, FINRA can issue a
cease and desist order before or after any hearings
PRE-HEARING CONFERENCE
held within 21 days of the respondent’s answer
tothecomplaint to consider the actions to be
taken
DISTRICT HEARING PANEL
if requested, a hearing ,vith the District Hearing
Panel is scheduled giving at least 28 calendar
days’ notice to prepare
the hearing is held where the member’s principal
office is located
DISTRICT HEARING PANEL RENDERS A DECISION
within 60 days, the Panel renders a decision
if it’s not appealed, it is not final until 25
calendar days have elapsed
• if either party is displeased:
1st appeal is to FINRA National
Adjudicatory Council- made within 25
calendar days of decision
• the Council can, on its own, review
the Panel’s decision within 45
calendar days
after National Adjudicatory Council hearing;
2nd appeal is to SEC
last hearing: 3rd appeal is to Federal Court
Possible Penalties:
• censure, suspension, expulsion, and/or
fines
Settlement Offer:
• at any point in the process the
respondent can offer to settle
• the offer must:
• be in writing
• state action that caused the
violation
• state the proposed sanction
• waive all rights
• the FINRA Department of
Enforcement decides if it will accept
the offe
MINOR COMPLAINTS • Minor Rules Violation MRV max fine
maximum $2,500 fine
SUMMARY SUSPENSION • FINRA can summarily suspend, without a
hearing, any member that is:
suspended or expelled from another SRO; or
experiencing financial and operating
difficulties
• if summary action is taken, the firm may request
a hearing within 7 calendar days of the date of
notification; and the hearing must be held
within 7 days of the written request
FINRA CODE OF ARBITRATION
required to settle disputes between
member firm and another member
- member finn and clearing agency
- member firm and associated person
- associated person and associated person
• member firm and customer where the customer
previously signed the arbitration agreement
decisions are not appealable
customer can initiate an arbitration proceeding
against a member
• member cannot compel the customer to have a
dispute settled by arbitration UNLESS the
customer has previously signed a Predispute
Arbitration Agreement
FINRA CODE OF ARBITRATION
FINRA SETTLES DISPUTES with members
USING
the CODE OF PROCEDURE!
FJNRA CODE OF ARBITRATION
NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
PANEL COMPOSITION
SIMPLIFIED ARBITRATION
STATUTE OF LIMITATIONS
ARBITRATION AWARDS
:-)
NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
oversees the appointment of arbitration panels
NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
Selection of Arbitrators
individuals inside and outside the industry
anyone can be an arbitrator
NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
Selection of Arbitrators
individuals inside and outside the industry
anyone can be an arbitrator
Non-Public Arbitrator
Public Arbitrator
NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
oversees the appointment of arbitration panels
Selection of Arbitrators
Non-Public Arbitrator is a person who:
within the past 5 years was associated
with a broker-dealer (including Gov’t
and municipal dealers) or
commodities firm;
• is retired from engaging in the
activities in the previous definition;
• is an attorney, accountant, or other
professional who has DEVOTED 20%
OR MORE IN the LAST 2 YEARS to
clients in the first definition; or
is an employee of a financial
institution and effects transactions in
securities or commodities or monitors
compliance of individuals engaged in
these activities
~ Note that immediate family members of
these individuals are also looked at as “nonpublic”
arbitrators
Also Note: once the person has been “out
of the business” forat least5 years. they
are now considered a “public” arbitrator
finally. any person associated with the
industry for at least 20 years is defined as a
“non-public” arbitrator regardless of how
long they have been “out of the business”
NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
oversees the appointment of arbitration panels
Selection of Arbitrators
Public Arbitrator
any person not engaged in the
activities of a “Non-Public Arbitrator”
NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
oversees the appointment of arbitration panels
Selection of Arbitrators
PANEL COMPOSITION • If The Claim ls For $100,000 Or More, The
Panel Generally Consists Of 3 Individuals:
Member-To-Member Disputes have a
panel of 3 non-public arbitrators
Associated Person (AP) Disputes (for
instance, between an AP and member; or
AP and AP) have a panel consisting of 1
non-public arbitrator and 2 public
arbitrators;
Customer Disputes have a panel consisting
of 1 non-public arbitrator and 2 public
arbitrators; OR if the customer elects, he can
choose a 3 all-public panel (called the
“Optional All Public Panel Rule”)
NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
oversees the appointment of arbitration panels
Selection of Arbitrators
PANEL COMPOSITION
If The Claim ls For Less Than $100,000, The
Panel Generally Consists Of 1 Individual
Intra-Industry Disputes - 1 non-public
arbitrator
AP or Customer Disputes - 1 public
arbitrator
NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
SIMPLIFIED ARBITRATION
available for disputes not exceeding $50,000
• claim is filed with the Director of Arbitration
and copy is sent to the firm that is the object of
the claim
• respondent has 45 calendar days to respond
and can specify counterclaims (which must be
answered within another 10 calendar days, after
which a binding decision is rendered)
• decisions are rendered within 30 days from the
date the record is closed
NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
STATUTE OF LIMITATIONS
6 year (from the event) statute of limitations for filing a claim for settlement by arbitration
NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
ARBITRATION AWARDS
must be paid within 30 days of decision date • if the member finn fails to pay, FINRA will
give 15 days’ notice to the firm, after which it
may suspend or revoke the firm’s registration
