I am proud to have served FINRA for over ten years and am certified as a FINRA Arbitrator and Mediator.
Arbitration and mediation are two distinct ways of resolving securities and employment disputes between and among investors, brokerage firms and individual brokers, and offer a prompt and inexpensive way of resolving issues.
Investors can file an arbitration claim or request mediation through FINRA when they have a dispute involving the business activities of a brokerage firm or one if its brokers. To be considered, the alleged act resulting in a claim must have taken place within the past six years.
Dispute Resolution is not the same as filing an investor complaint. Some investors are confused about the differences between resolving monetary disputes through arbitration or mediation, and filing an investor complaint. These are unrelated. If you want to make FINRA aware of any potentially fraudulent or suspicious activities by brokerage firms or brokers, then the best course of action is to use FINRA’s Investor Complaint Center.
However, if you want to recover damages, such as money or securities, filing an arbitration or mediation case offers you a way to seek damages. Importantly, investors can file an investor complaint and file for arbitration; investors are not limited to one or the other option.
Arbitration is similar to going to court, but is usually faster, cheaper and less complex than litigation. It is a formal alternative to litigation in which two or more parties select a neutral third party, called an arbitrator, to resolve a dispute. The arbitrator’s decision, called an award, is final and binding. By arbitrating a claim you cannot have the same matter decided by a court of law. In resolving disputes through arbitration, a FINRA arbitrator or panel (consisting of three arbitrators) will listen to the arguments set forth by the parties, study the testimonial and/or documentary evidence, and then render a decision. When an arbitration case goes to a hearing, it can take up to 16 months for an award to be determined.
The size of the claim will determine how the arbitration process works. Claims involving more than $100,000 require an in-person hearing decided by a panel of three arbitrators, with one chairing the hearing. Smaller claims are decided by one arbitrator and the smallest—claims of up to $50,000—may be decided through a Simplified Arbitration Process, with the arbitrator deciding the case by reviewing all the materials presented by the parties without an in-person hearing.
Mediation offers a flexible alternative to arbitration, and can be initiated at any time before arbitration commences and even during an arbitration case before it concludes.
It is an informal process in which a trained, impartial mediator facilitates negotiations between disputing parties, helping them find a mutually acceptable solution. Both parties in a dispute must agree to mediation. However, FINRA does not require parties to mediate.
FINRA mediators have subject-matter expertise, so parties can select a mediator who is knowledgeable in the particular securities or business area that is in dispute.
Mediation is a voluntary process, so either party can decide to stop at any time. More than 80 percent of mediations result in a settlement, and the process is in most cases significantly faster than arbitration. And unlike arbitration, mediation does not impose a solution. It is not binding until the parties reach and sign a settlement agreement.