FINRA Warns Arbitration Clauses Aren't Foolproof

The Financial Industry Regulatory Authority is concerned that broker-dealers are inappropriately limiting the rights of consumers involving arbitration. FINRA warned the industry to get its house in order.

“Member firms with customer agreements that include provisions that do not comply with FINRA rules should take prompt steps to ensure that their customer agreements fully comply with FINRA rules,” a statement from the organization said.

At issue are mandatory arbitration clauses often used by broker-dealers.

Those clauses are legal. But FINRA reminded the industry that when an investor signs such a clause they are not waiving the right to participate in class-action lawsuits, according to the National Law Review.

FINRA also said that attempts to limit the location of arbitration hearings or change statute-of-limitation rules also violated regulations, according to Lexology.



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