FINRA’s Authority in Arbitration and Disputes

⚖️ FINRA’s Authority in Arbitration and Disputes

The Financial Industry Regulatory Authority (FINRA) plays a central role in resolving disputes in the U.S. securities industry. As a self-regulatory organization (SRO), FINRA provides a legally binding arbitration and mediation forum for conflicts between investors, firms, and registered representatives.

Here’s what you need to know about FINRA’s authority in arbitration and disputes—especially for the Series 6, 7, 24, 63, 65, and 66 exams.

🏛️ What Is FINRA Arbitration?

Arbitration is a formal, binding process in which disputes are resolved by a panel of neutral arbitrators rather than in a court of law.

• 📄 Governed by FINRA’s Code of Arbitration Procedure
• 🧾 Used to resolve disputes involving:
  • Investors and broker-dealers
  • Firms and registered representatives
  • Disputes between firms

✅ Awards issued by FINRA arbitrators are legally binding and enforceable in court.

📘 When Is Arbitration Required?

Mandatory Arbitration:

• Most brokerage account agreements contain pre-dispute arbitration clauses
• Registered reps agree to arbitration through Form U4
• Customers and firms must use FINRA arbitration when specified in signed agreements

Not Subject to Arbitration:

• Criminal matters
• Certain class action lawsuits
• Disputes involving non-signatories to arbitration clauses

🧩 Types of FINRA Disputes Handled

🔍 Key Features of FINRA Arbitration

• ⚖️ Panel Selection: Typically includes 1–3 arbitrators, depending on claim size
• 🕒 Time Frame: Most cases are resolved within 12–16 months
• 💵 Damages: May include compensatory, and sometimes punitive, damages
• 🚫 No Appeals: FINRA arbitration awards are final and not appealable
• 💻 Arbitration Portal: All parties communicate via the FINRA Dispute Resolution Portal

🤝 FINRA Mediation (Alternative Option)

• Mediation is voluntary and non-binding
• Used when both parties agree to resolve the issue informally
• Faster and often less expensive than arbitration
• If successful, results in a written settlement agreement

📝 Example Series 7 Exam Question

A customer files a claim against a broker for unsuitable recommendations. The broker’s Form U4 includes an arbitration clause. Where will this dispute be resolved?

A. In small claims court
B. Through FINRA mediation
C. In FINRA arbitration
D. Through civil litigation in state court

✅ Correct Answer: C. In FINRA arbitration
Explanation: Since Form U4 includes a mandatory arbitration clause, disputes are subject to FINRA’s binding arbitration process.

🚀 Summary: FINRA’s Dispute Resolution Power

• FINRA arbitration is a mandatory, legally binding process for most industry disputes
• Applies to both customer and industry cases
• FINRA has full authority to enforce, administer, and oversee all arbitration proceedings
• Awards issued are enforceable like court judgments

👉 Learn More or Access FINRA Dispute Resolution Resources

Understand the forum. Know your rights. Prepare with clarity.