Modernizing FINRA Arbitration Rules, Guidance and Processes

Summary

SIFMA provided comments to the Financial Industry Regulatory Authority (FINRA) in response to Regulatory Notice 26-06 (the "Notice"), which seeks public comment on modernizing FINRA arbitration rules, guidance, and processes.

Excerpt

As stated in our July 2025 letter, SIFMA strongly supports efforts by FINRA to improve its arbitration forum, and we believe reform is needed to preserve the benefits of the FINRA arbitration process. Our recommendations are designed to improve the overall fairness and efficiency of the forum for all stakeholders, and, above all, ensure investor protection.

Executive Summary

Nearly all disputes between broker-dealers, associated persons, and customers are resolved in FINRA's arbitration forum. Given the forum's central role in the securities industry, it is essential that it operates efficiently and delivers fair and predictable outcomes to all participants. FINRA's arbitration forum currently provides a reasonably efficient and cost-effective process for resolving disputes. But as markets evolve and disputes become more complex, FINRA must adapt and implement necessary reforms to meet the needs of an ever-
changing industry. By doing so, FINRA can strengthen confidence in its arbitration forum and reinforce its role as a trusted mechanism for dispute resolution.

Consistent with these principles, SIFMA is proposing that FINRA take action to reduce inefficiencies and improve the fairness of FINRA arbitration. As detailed herein, SIFMA makes the following recommendations for each of the areas on which FINRA requested comment:

• Forum Selection: Permit agreements to resolve certain narrow categories of claims outside the FINRA arbitration forum, such as high-value claims, claims by institutional investors, and intra-industry disputes, which do not give rise to traditional investor protection concerns.
• Punitive Damages: Permit parties to set reasonable limits on punitive damages that are consistent with applicable law in order to promote consistency and predictability, particularly given the limited bases for appealing arbitration awards.
• Form U5 Defamation Claims: Establish clear requirements for the adjudication of Form U5 defamation claims, provide guidance, training, and instructions to arbitrators on those requirements, and provide member firms with qualified immunity for Form U5 statements required by industry rules.
• Eligibility and Motions to Dismiss: Amend the rules governing eligibility and dismissal of claims to address threshold issues sooner and avoid the unnecessary expenditure of resources.
• Arbitrator Qualifications, Classifications & Selection, and Training: Continue to strengthen arbitrator quality and accountability, including through additional training, fair compensation, and effective oversight, which could improve confidence in the arbitration process, particularly as cases grow more complex.
• Discovery and Hearing Oversight/Efficiency: Update the rules governing discovery and hearing management to keep cases moving in a timely and cost-effective manner.
• Explained Decisions in Awards: Do not require explained decisions in arbitration awards. Doing so would only make the process less efficient, without meaningful evidence of commensurate benefits to parties.