Requiring Brokers to Submit to Private Arbitration Outlawed

A recently enacted FINRA Regulatory notice now prohibits member firms from requiring that associated persons submit to private arbitration. FINRA Regulatory Notice 16-25 states that in all employment agreement disputes member firms cannot require associated persons to resolve employment, business, commercial, or competition disputes at a private arbitration forum or in civil litigation. FINRA Regulatory Notice 16-25 states that FINRA Rule 13200 of the Code of Arbitration Procedure for Industry Disputes do not allow for the waiver of claims arising out of business activities of a member or an associated person between a member or another associated person.

The decision has a major impact on investment advisors seeking to transition their book of business to another brokerage platform. Prior to the implementation of Regulatory Notice 16-25 all associated persons who left their brokerage firm, seeking to transition to a new trading platform would have to potentially arbitrate a dispute over deferred compensation, bonus restructuring, promissory notes, or anything compensation related in a private forum. Unlike in a FINRA arbitration, in private arbitration any awards issued out to brokers from their former member firms would not be disclosed, making it very challenging for brokers to assess the merits of their claims. Member firms on the other hand would be left with a strong tactical advantage in negotiating compensation settlements as only member firms would be aware of previous award settlements issued by private arbitration venues. FINRA dispute resolution and arbitration on the other hand is publicly available in a searchable online database, offering brokers greater transparency in assessing the strength of their claim.

While this decision is a major benefit there are still a myriad of challenges that registered representatives face in FINRA arbitration. The Law offices of Lubiner, Schmidt & Palumbo have extensive experience in the securities industry, especially pertaining to employment issues with member firms. Attorneys at the offices of Lubiner, Schmidt & Palumbo have handled hundreds of claims related to broker recruiting protocol issues, U-4 and U-5 defamation, promissory note disputes, and deferred compensation disputes.

For more information on how the Law offices of Lubiner, Schmidt & Palumbo can help you experience a more seamless transition from one brokerage to another, please call at 908-709-0500.