FINRA Board Approves Two Arbitration Rulemaking Items
Posted on Categories Arbitration, Broker-Dealer, FINRA Code of Arbitration, Representation Issues, Rulemaking, Securities ArbitrationTags , , , ,

FINRA’s Board of Governors met December 12-13 and approved two major arbitration-related proposals on non-attorney representatives and expungement guidance.

We reported in SAA 2018-47 (Dec. 12) that, according to the posted meeting Agenda, “The Regulatory Policy Committee will review several current rulemaking proposals, including: a proposal to prohibit compensated non-attorney representatives in arbitrations and mediations; and proposed changes to the Code of Arbitration Procedure codifying existing arbitrator expungement guidance.” Recall that, in keeping with the “new normal,” the Board previously authorized staff to publish Regulatory Notices seeking public comments on two proposals: 1) Regulatory Notice 17-34, FINRA Requests Comment on the Efficacy of Allowing Compensated Non-Attorneys to Represent Parties in Arbitration (Oct. 18); and 2) Regulatory Notice 17-42, FINRA Requests Comment on Proposed Amendments to the Codes of Arbitration Procedure Relating to Requests to Expunge Customer Dispute Information (Dec. 6). The comment periods ended months ago, and our take was that staff had completed their review and would be presenting final rulemaking proposals to the Board. FINRA on December 21st issued a Press Release, Report, and video on the meeting’s results.

As We Expected, A Ban on Compensated Non-Attorney Reps

One of our editorial comments was: “Although no further information is contained in the meeting notice, it’s clear to us from the Agenda item title that staff is proposing a ban on compensated non-attorney reps.” Turns out we were right. On the arbitration-related items, the report advises that the Board approved two rule proposals to be published by FINRA for comment or filed with the SEC, the first of which is: “Proposal to Prohibit Compensated Non-Attorney Representatives (NARs) in Arbitration and Mediation – The Board approved filing with the SEC proposed amendments to the Codes of Arbitration and Mediation Procedure relating to prohibiting compensated non-attorney representatives from practicing in the FINRA arbitration and mediation forum.” What might be changed? Recall that Code of Arbitration Procedure Rule 12208(c) provides: “Representation by Others: Parties may be represented in an arbitration by a person who is not an attorney, unless: state law prohibits such representation; or the person is currently suspended or barred from the securities industry in any capacity; or the person is currently suspended from the practice of law or disbarred.” Also, Regulatory Notice 17-34 advised that FINRA was conducting a review of “the efficacy of continuing to allow such representation” and specifically sought constituent input “with respect to the efficacy of allowing NAR firms to continue to represent clients in the forum.”

Expungement Guidance to be Codified

The Report also states: “Proposed Changes to the Codes of Arbitration Procedure Relating to Codification of Expungement Guidance – The Board approved proposed amendments to the Codes of Arbitration Procedure for Customer and Industry Disputes to codify the Notice to Arbitrators and Parties on Expanded Expungement Guidance and modify the fees for small claim expungement.” What might be changed? As we reported a year ago in SAA 2017-46 (Dec. 6), ODR issued Regulatory Notice 17-42, FINRA Requests Comment on Proposed Amendments to the Codes of Arbitration Procedure Relating to Requests to Expunge Customer Dispute Information. Our summary of the proposed changes taken mostly verbatim from FINRA’s December 2017 Press Release announcing the Notice was: 1) establish a roster of arbitrators with additional training and specific backgrounds or experience from which a panel would be selected to decide requests for expungement of customer dispute information in settled cases and in cases brought for the sole purpose of seeking expungement (ed: This comports with a Dispute Resolution Task Force recommendation appearing on page 27 of the Final Report); 2) change the timeframe in which an associated person can seek expungement of the customer dispute information (ed: 60 days before the first scheduled hearing session); and 3) require the unanimous consent of a three-person panel of arbitrators to grant expungement.

(ed: *We imagine these proposals will generate many comments! **Director of Arbitration Richard Berry describes the changes starting around marker 0:30 of the video.) (SAC Ref. No. 2018-48-01)

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