November 28, 2022

Volume XII, Number 332


FINRA Reminds Members About Requirements When Using Predispute Arbitration Agreements for Customer Accounts

On April 21, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 21-16 (Notice) to remind member firms about requirements when using predispute arbitration agreements for customer accounts.

FINRA published the Notice to remind member firms that when they use mandatory arbitration clauses in their customer agreements, they must follow the applicable FINRA Rules. The FINRA Rules: (1) establish minimum disclosure requirements regarding the use of arbitration clauses; (2) prohibit predispute arbitration agreements from including conditions that, among other things, limit or contradict FINRA Rules; and (3) prohibit class action claims in FINRA arbitration. Accordingly, FINRA Rules prohibit member firms from incorporating provisions that would prevent customers from bringing or participating in judicial class actions by adding waiver language into customer agreements (class action waivers) and prohibit member firms from enforcing arbitration agreements against members of a certified or putative class action.

The Notice urges member firms to take prompt steps to ensure their customer agreements fully comply with FINRA Rules and reminds member firms that if they fail to comply, they may be subject to disciplinary action.

Regulatory Notice 21-16.

©2022 Katten Muchin Rosenman LLPNational Law Review, Volume XI, Number 113

About this Author

Susan Light, Katten Law Firm, Finance Law Attorney, New York

Susan Light focuses her practice on financial services regulatory matters. She counsels broker-dealers, hedge funds, investment banks and financial services clients on enforcement issues involving the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), other self-regulatory organizations (SROs) and state and federal regulatory authorities. She has particular experience related to sales practice issues, financial and operational issues, anti-money laundering, crowdfunding, cybersecurity, and cryptocurrencies.

Elise Michael, Katten Law Firm, New York, Finance Law Attorney

Elise Michael represents clients in the financial services industry. Prior to joining Katten, Elise was at J.P. Morgan Chase, where she supported the Private Bank’s advisory and alternatives businesses.

While in law school, Elise was a corporate scholar in the Samuel & Ronnie Heyman Center on Corporate Governance and the managing editor of the Cardozo Arts & Entertainment Law Journal. She also served as an intern with the US Commodity Futures Trading Commission (CFTC).