2.5.4. Dispute Resolution Procedures
FINRA, through its Code of Procedure, has the authority to bring punitive action against member firms and associated persons for statutory and rules violations. Customers, member firms, and associated persons do not. Customers may file complaints with FINRA’s Department of Enforcement, which may trigger an investigation leading to a hearing and judgment, but FINRA will be the complainant. Nor can member firms or associated persons drag one another into a formal proceeding.
Customers and associated persons generally sign away their right to take a disputed matter to court. Form U4 contains a predispute arbitration clause. Upon signing this form, a new employee agrees to settle any disputes with member firms or customers by arbitration and to give up the right to sue in court.
Similarly, customers sign agreements with brokerage accounts to settle disputes by arbitration. There are disclosure rules about predispute clauses, however. Any predispute arbitration clause presented to a customer must be highlighted and preceded by the following language.
This agreement contains a predispute arbitration clause. By signing an arbitration agreement the parties agree as follows:
• All parties to this agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.
• Arbitration awards are generally final and binding; a party’s ability to have a court reverse or modify an arbitration award is very limited.
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