FINRA recently issued new guidance, reminding member firms that when they “use mandatory arbitration clauses in their customer agreements, FINRA rules establish minimum disclosure requirements regarding the use of such clauses and prohibit predispute arbitration agreements from including conditions that, among other things, limit or contradict FINRA rules.”
In particular, FINRA’s guidance emphasizes that “any predispute arbitration clause must be highlighted in the customer agreement and immediately preceded by disclosures that the customer agreement contains such a clause and that describe the consequences of agreeing to arbitration,” and that predispute arbitration agreements many not include a provision that “(1) limits or contradicts the rules of any self-regulatory organization (SRO); (2) limits the ability of a party to file any claim in arbitration; (3) limits the ability of a party to file any claim in court permitted to be filed in court under the rules of the forums in which a claim may be filed under the agreement; or (4) limits the ability of arbitrators to make any award.”
FINRA’s guidance appears to be precipitated by observations that certain firms were including items in their agreements that “attempt to dictate the location of the arbitration hearing,” “attempt to shorten or extend applicable statutes of limitations,” “attempt to limit a customer’s right to pursue class actions in court,” “attempt to limit the ability of a customer to file a claim or to limit the authority of the arbitrators to make an award,” and/or “require that the customer indemnify and hold harmless the member firm from all claims and losses arising out of the agreement.”
Positively Neutral 