In recent months, news of newly adopted amendments to the way that the Financial Industry Regulatory Authority (FINRA) handles expungement requests and other arbitration procedures has proliferated throughout the financial sector. FINRA makes it clear that its purpose is to “work towards finding common solutions to create a regulatory environment that promotes collaboration, innovation, and fairness.” In response to concerns that financial advisors were able to obtain the expungement of customer dispute information from publicly available databases like BrokerCheck too easily, FINRA introduced tighter procedures and restrictions to limit such requests. Now that the amended rule changes have been in effect for a few months (starting in October 2023), it’s time to take a look at how these revisions have affected the dispute resolution process. FINRA recently released the latest dispute resolution statistics, including arbitration case filings and trends occurring between January and November of 2023. While this post will dive deeper into the specific statistics and trends identified during this timeframe, it’s important to recognize that the overwhelming trend is a notable increase in overall arbitration case filings from the previous year. Let’s explore some of the key takeaways from FINRA’s latest statistics and how they may influence the arbitration landscape in the coming years.
FINRA Sees a Considerable Increase in Arbitration Case Filings
The most striking realization stemming from FINRA’s latest report of arbitration case filings and trends is that the number of filings has risen considerably between 2022 and 2023. FINRA provided data for the period between January and November 2023. During this time, the number of arbitration case filings rose by 30 percent when compared to the number of filings that occurred during the same period in 2022. The number of arbitration cases filed with FINRA between January and November 2022 was 2,423 cases, which increased to a total of 3,159 cases during the same period in 2023. The number of customer-initiated claims rose by 12 percent from 2022 to 2023, while the number of intra-industry claims increased by 63 percent from the previous year. It’s important to note that FINRA accounted for both in-person and virtual hearings when preparing this data. So far, it seems as if the total number of cases filed has finally risen to where it was in 2020. In 2020, the total number of cases filed was 3,902, and the number of cases fell in 2021 (2,893 cases filed) and 2022 (2,671 cases filed). As of November 2023, 3,159 cases were filed—the highest number since 2020.
The Most Common Controversy Types in Customer Arbitrations
The top controversy types involved in customer arbitrations held relatively steady from 2022 to 2023. Leading the way in the most common customer arbitration controversy type through November 2023 was Breach of Fiduciary Duty (1,382 cases), followed by Negligence (1,279 cases). In descending order, the following controversy types were cited as the most popular among customer arbitration cases filed in 2023: Failure to Supervise (1,042 cases), Breach of Contract (1,001 cases), Misrepresentation (992 cases), Suitability (851 cases), Omission of Facts (812 cases), Fraud (635 cases), Violation of Blue Sky Laws (380 cases), Breach of Regulation BI (372 cases), Manipulation (254 cases), Elder Abuse (201 cases), Unauthorized Trading (160 cases), Errors-charges (126 cases), and Churning (86 cases). Overall, 2023 saw the largest increase in customer arbitrations regarding negligence, failure to supervise, and breach of contract from the previous year.
Top Security Types Involved in Customer Arbitrations
When it comes to the most commonly cited security types involved in customer arbitrations, there was a significant increase in those related to mutual funds (140 cases in 2022 versus 217 cases in 2023). Common Stock remained the top security type involved in FINRA customer arbitrations, with 329 cases served in 2023 and 326 cases served during the same period in 2022. Mutual Funds came in second place, followed by Corporate Bonds (209 cases). The following security types involved in customer arbitrations are arranged in decreasing order: Real Estate Investment Trust (158 cases), Options (106 cases), Private Equities (92 cases), Exchange-Traded Funds (73 cases), Variable Annuities (68 cases), Municipal Bond Funds (65 cases), Preferred Stock (64 cases), Annuities (60 cases), Limited Partnerships (52 cases), 401(k) (42 cases), Structured Products (40 cases), and Business Development Company (37 cases). It’s important to recognize that a single arbitration case may include more than one security type.
Trends Regarding How Arbitration Cases Close
According to FINRA’s data documenting how cases were resolved in 2023 (between January and November), 50 percent concluded with a direct settlement by the involved parties (1,347 cases). Approximately 18 percent of arbitration cases went before an arbitration panel, 15 percent of which were resolved after a regular hearing. However, 3 percent of cases that went before an arbitration panel concluded after the review of documents (71 cases), while 1 percent (16 cases) ended after a special proceeding hearing. Roughly 17 percent (454 cases) were settled using mediation, 9 percent (232 cases) were withdrawn, and 7 percent (196 cases) were resolved by other means. Moreover, it’s important to note that there were 670 contested motions for virtual arbitration hearings filed between January and November 2023, 67 percent of which were granted (445 cases) and 33 percent of which were denied (224 cases). As industry experts look ahead to the new year and beyond, they expect to see similar trends that reflect the bend back toward pre-pandemic metrics. With the increasing availability and convenience of virtual hearings, FINRA continues to remove barriers to moving arbitration cases forward. If you have a question or concern about the FINRA arbitration process, please contact a knowledgeable and trusted securities law attorney to discuss your options for obtaining your desired outcome.
If you have questions about FINRA’s arbitration process or you need help pursuing an expungement request to have erroneous customer dispute information removed from the CRD and BrokerCheck, Judex Law, LLC, is here to help you achieve your desired outcome. Give us a call today at (303) 523-4022 to get started with an experienced and friendly securities law attorney.
