The Financial Industry Regulatory Authority (FINRA) recently released a newsletter reminding arbitrators of the importance of maintaining civility during arbitration proceedings. According to FINRA’s website, the agency is “dedicated to protecting investors and safeguarding market integrity in a manner that facilitates vibrant capital markets.” One of FINRA’s primary focuses is on identifying securities firms or individual financial advisors who have engaged in acts of bad faith and holding them accountable for these actions. When a customer makes a complaint about a broker, this information is entered into the Central Registration Depository (CRD) and made publicly available on BrokerCheck, a searchable database. Unfortunately, customer dispute information is not vetted or investigated before it appears in the CRD, resulting in inaccurate or downright false information negatively affecting a broker’s professional reputation. The broker may pursue an expungement through arbitration, but FINRA’s recent proposed amendments filed with the Securities and Exchange Commission (SEC), if approved, will limit the expungement request process severely. As we await the SEC’s ruling on these proposed changes, it’s worth looking at FINRA’s recent guidelines on maintaining civility during arbitration proceedings.
Clarifying the Arbitrator’s Role
When a dispute moves to arbitration, a panel of three independent arbitrators from a vetted list will be appointed to oversee the case. FINRA has already compiled a list of ten tips for being a “better arbitrator.” Some of these tips include: Setting “ground rules” of behavior and being consistent about enforcing them; preparing for all conferences and hearing by reading the pertinent documents in advance; being punctual in convening all conferences and hearings; discouraging abuses of the process (i.e., unreasonable requests for discovery, last-minute requests for recusal, etc.); refusing to tolerate hostile or demeaning language in written or oral communications among lawyers, parties, witnesses, or administrative staff; and familiarizing themselves with the FINRA Code of Arbitration Procedure.
Highlights From FINRA’s Recently Released Guidelines
The latest FINRA newsletter dedicated several pages to reminding arbitrators of their responsibility to maintain civility during proceedings. The article focuses on three main actions an arbitrator should focus on to keep arbitration proceedings moving forward smoothly and professionally: (1) Setting expectations for arbitration decorum; (2) Maintaining proper decorum; and (3) Intervening when necessary to preserve civility.
Setting Expectations for Arbitration Decorum
Before the process begins, FINRA urges arbitrators to establish ground rules for behavior. The arbitrators should take some time to remind all parties and counsel to treat all case participants, including FINRA’s Dispute Resolution Services (DRS) administrative staff, with grace, courtesy, and respect at every stage of the arbitration process. Arbitrators should also clarify that they will intervene whenever necessary to preserve civility.
Maintaining Decorum During Arbitration Proceedings
It’s up to the arbitrators to ensure that the proceedings move forward as smoothly and civilly as possible. FINRA’s guidelines provide strategies for arbitrators to maintain decorum during a hearing, such as ensuring the proceedings are fair, professional, and neutral. Arbitrators should also remind the participants to limit their opening statements to brief, non-argumentative overviews of what they intend to prove. Additionally, the arbitration panel must encourage the parties to refrain from interrupting each other’s opening and closing statements and to direct comments or objections to the panel only. Arbitrators may remind attorneys to review behavioral and procedural expectations with clients and witnesses to ensure that all parties enter arbitration with a similar level of understanding and respect.
Knowing When to Intervene
In the event of disruptions or a party’s failure to maintain civility during proceedings, arbitrators should be prepared to intervene and preserve decorum. There are several actions that arbitrators can take in response to disrespectful or disruptive behavior, beginning with calling a recess. Suspending the proceedings allows the parties to collect themselves and regain composure. Arbitrators may also wish to warn the parties and counsel about the consequences of continued misconduct, such as postponement of the proceedings and the potential costs associated with this action. If the disruptive or disrespectful behavior continues, arbitrators may issue sanctions for a party’s failure to comply with the Codes of Arbitration Procedure. Potential sanctions may include: Precluding a party from presenting evidence; assessing monetary penalties payable to one or more parties; assessing postponement or forum fees; assessing attorney’s fees, costs, and expenses; and making an adverse inference against a party.
Submitting a Disciplinary Referral
When the arbitration matter concludes, arbitrators should submit referrals to the DRS. The DRS director will assess the referral and determine whether to forward the matter to FINRA’s National Cause and Financial Crimes Detection Programs (NCFC) team. From there, the referral may continue to the SEC, bar associations, the FBI, or other investigative authorities.
As a financial advisor, it’s essential to stay up to date with FINRA’s ever-changing rules, regulations, and procedural codes. If you need help navigating an expungement request, contact a trusted and experienced securities law attorney as soon as possible to discuss your options.
Contact Judex Law, LLC, at (303) 523-4022 to speak with an experienced and friendly securities law attorney.