Tag Archives: FINRA

An Overview of the SEC’s “Regulation Best Interest” and Form CRS

Broker-dealers (“BDs”) should be aware that, on June 5, 2019, the SEC adopted “Regulation Best Interest” (“Reg BI”), which requires BDs and their registered representatives (“RRs”) to “act in the best interest of the retail customer,” when “making a recommendation” regarding “a securities transaction or investment strategy.”  In addition, the SEC’s new rules require BDs to deliver Form CRS relationship summaries (“Form CRS”) to retail customers.  BDs will need to be in compliance with Reg BI and Form CRS, which were accompanied by more than 1,000 pages of explanation, by June 30, 2020.   On August 7, 2019, FINRA issued Notice 19-26, which informed BDs and RRs of the need to comply, but offered no guidance on compliance.  This post summarizes some of the key aspects of Reg BI and Form CRS.

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New Guidance Issued by FINRA to to Member Firms

Our colleagues at Epstein Becker Green have a post on the Financial Services Employment Law blog that will be of interest to our readers: “FINRA Issues New Guidance to Member Firms Regarding Customer Communications When Registered Representatives Depart.”

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SCOTUS Backs Employee Class Action Waivers: Next Steps for Financial Services Employers

In May, the U.S. Supreme Court ruled in Epic Systems Corp. v. Lewis that employers may lawfully require employees to sign arbitration agreements that include a waiver of the right to participate in an employee class action lawsuit or arbitration. Below, we discuss the significance of this decision and highlight issues that employers may wish to consider in the wake of it.

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SEC Makes Cybersecurity an Examination Priority for 2016

Businesses of all sizes and in virtually every industry face the daily threat of a data breach or other cybersecurity event, as well as the challenge of managing the potentially catastrophic economic and reputational harm that can flow from such an incident. Further complicating matters is that these threats can come from any number of sources: hackers, phishers, spammers, bot-network operators, spyware and malware authors, insiders, other nations, organized criminal groups, and terrorists. SEC regulations require registered financial institutions—including broker-dealers, investment companies, and investment advisers—to adopt written policies and procedures reasonably designed to ensure the security and confidentiality of customer information and records. In the last few years, the SEC has become increasingly vocal about cybersecurity compliance.

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FINRA DECISION PERMITS CLASS ACTION WAIVERS

By:  John F. Fullerton III and Matthew J. Tronzano

Mandatory class action waivers may have received an important seal of approval as the result of a recent decision arising in the financial services industry.  On February 21, 2013, a Financial Industry Regulatory Authority (FINRA) disciplinary hearing panel permitted Charles Schwab & Company, Inc. to maintain its predispute arbitration provision in its customer agreement that includes a class action waiver (pdf).  With this development, now may be the time for firms to evaluate and consider class action waivers in their arbitration agreements with both customers and employees.

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FINRA May Require Brokers to Disclose Recruiting Bonuses

FINRA is contemplating a new rule that would require brokers transferring firms to inform clients about their signing bonuses or other compensation they are receiving in connection with their moves.  The potential rule, which is now out for public comment, is being considered to protect customers.   By mandating disclosure of the money offered in connection with a move, the client can consider the true motivation behind the move and whether it is in the client’s best interest to transfer all of his or her business.  Indeed, many firms luring over brokers offer forgivable loans or signing bonuses that are contingent on hitting certain targets.  In order to hit such targets brokers may arguably be incentivized to perform more trades or shift business into particular funds.  With full knowledge of the “enhanced compensation” being provided or promised, the client will therefore be able to make a fully informed decision whether to follow the broker or not, or at least that is the theory behind the rule.  At this point, FINRA’s Board of Governors has given authority for FINRA to seek comment on the possible rule.

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New FINRA Rule Confirms That Whistleblower Claims Need Not Be Arbitrated

Written by Lauri F. Rasnick

Before the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”) was enacted, whistleblower claims by registered representatives, including those arising pursuant to the Sarbanes-Oxley Act of 2002 (“SOX”) were subject to mandatory arbitration at FINRA. See FINRA Notice 12-21 (PDF). Dodd Frank changed that. Dodd Frank specifically amended SOX to provide that “[n]o dispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.” In addition, SOX was also amended to provide that rights and remedies provided for in the statute cannot be waived, including by having a predispute arbitration agreement. In order to be consistent with SOX and to make it clear that FINRA will not require the arbitration of other similar statutory claims, as of May 21, 2012, FINRA amended Rule 13201 of the Code of Arbitration Procedure for Industry Disputes (the “FINRA Code”) to address the arbitrability of statutory whistleblower claims.

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New FINRA Rule Confirms That Whistleblower Claims Need Not Be Arbitrated

Before the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”) was enacted, whistleblower claims by registered representatives, including those arising pursuant to the Sarbanes-Oxley Act of 2002 (“SOX”) were subject to mandatory arbitration at FINRA.  See FINRA Regulatory Notice 12-21 (PDF).  Dodd Frank changed that.  Dodd Frank specifically amended SOX to provide that “[n]o dispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.”  In addition, SOX was also amended to provide that rights and remedies provided for in the statute cannot be waived, including by having a predispute arbitration agreement.  In order to be consistent with SOX and to make it clear that FINRA will not require the arbitration of other similar statutory claims, as of May 21, 2012, FINRA amended Rule 13201 of the Code of Arbitration Procedure for Industry Disputes (the “FINRA Code”) to address the arbitrability of statutory whistleblower claims.

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FINRA Cases To Be Heard By One Arbitrator, Without A Hearing, Have Been Expanded

By:  Dena L. Narbaitz

 This is the fourth in our series of posts on practice and procedure in employment-related arbitrations before FINRA.  Check back often for future posts, subscribe to The Bellwether, or follow @bellwetherblog on Twitter so you don’t miss any!

The FINRA Code of Arbitration Procedure provides for a simplified arbitration process in both employment and customer disputes if the dollar amount in controversy is below a certain threshold. The SEC recently approved FINRA’s proposal to raise the dollar limit eligible for simplified arbitration procedures from $25,000 to $50,000.  Also, FINRA gained approval to have cases with alleged damages between $50,001 and $100,000, to be heard by one arbitrator – unless the parties mutually agree to three panelists.   

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FINRA Rules 13201 and 13802: Arbitrating Statutory Employment Discrimination Claims

By:  John F. Fullerton III

This is the third in our series of posts on practice and procedure in employment-related arbitrations before FINRA.  Check back often for future posts, subscribe to The Bellwether, or follow @bellwetherblog on Twitter so you don’t miss any!

Once upon a time, it was mandatory under Form U4 that registered representatives file any statutory claims of discrimination (such as age, gender, or race discrimination) in arbitration rather than in court.  A well known Supreme Court case decided in 1991, Gilmer v.  Interstate/Johnson Lane Corp., upheld that requirement.  Starting in January 1999, however, the requirement for registered persons to arbitrate claims of statutory employment discrimination was eliminated from the rules of the NYSE and NASD, FINRA’s predecessor organizations.  Since then, discrimination claims still can be and often are heard and decided by FINRA arbitrators—but only if both parties voluntarily agree to arbitration, either before or after a dispute arises.  In other words, arbitration of statutory discrimination claims is no longer a required condition of employment for all registered representatives by virtue of language in the U4, but rather, must be agreed to separately in an employment agreement or an employer’s mandatory arbitration program.

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