The Financial Industry Regulatory Authority (FINRA) is an organization designed to protect investors by ensuring broker-dealers operate ethically. One of the ways FINRA accomplishes this goal is by using the arbitration process to help settle disputes.
Arbitration involves the use of an impartial intermediary who listens to the arguments from both sides. The arbitrator or arbitrators will then issue a binding decision. A FINRA arbitration panel is made up of one to three arbitrators who are chosen by the parties.
The arbitration process
There are a number of steps to the arbitration process. In general, the process will take the following course:
- Filing a statement of claim: The process is kicked off when one party files a statement of claim. The claim will outline the dispute, identify the parties involved, and contain a request for relief.
- Service and answer: FINRA will serve the statement of claim on the other parties. Respondents have 45 days to answer the claim. A typical answer will contain relevant facts and provide a defense to the claim.
- Selection of arbitrators: Each party will receive a list of available arbitrators. Either party may object to the selection of certain arbitrators, within reason.
- Prehearing conference: At the prehearing conference, the parties and the arbitrators will set dates for evidentiary hearings, deadlines for discovery, and other preliminary motions.
- The hearing: An arbitration hearing largely resembles a courtroom trial. Both sides will present evidence, call witnesses, and deliver opening and closing statements.
- Decision time: The arbitrators will take the time to consider all of the evidence. The arbitrators have 30 days to render a decision. There are a very limited set of circumstances where a party may challenge the arbitrator’s decision.
Both parties may agree to settle their case at any time during this process.