InvestmentNews (March 16, 2020) - The broker-dealer regulator said it is taking action ‘in the interest of public safety’
Finra has postponed all in-person arbitration and mediation proceedings scheduled from now until May 1 in response to the COVID-19 outbreak.
The Financial Industry Regulatory Authority Inc. said in a posting on its website Monday that parties involved in cases affected by the delay will be contacted to reschedule or to discuss remote hearing options. The broker-dealer self-regulator noted that case deadlines will continue to apply unless both parties agree to extend them.
“We recognize that this decision may cause inconvenience and we do not make it lightly,” Finra said in the announcement. “We are taking this preventative action out of an abundance of caution, in the interest of public safety. The well-being of our FINRA employees, arbitrators, stakeholders and communities is of paramount importance.”
A former director of Finra arbitration said the move makes sense given how the pandemic is evolving. The regulator previously had postponed arbitration hearings in the wake of the Sept. 11, 2001, terrorist attacks and Hurricane Maria in Puerto Rico.
“The health emergency is inevitably going to impact arbitration participants across the board, so this action by Finra should not be terribly surprising or disruptive,” said George Friedman, editor in chief of the Securities Arbitration Commentator.
Andrew Stoltmann, a Chicago securities attorney, said Finra had to take steps to avoid a situation where a “Typhoid Mary” was involved in an arbitration proceeding.
“If you find out a Finra arbitrator or staff member is infected with the coronavirus, it could expose Finra to legal liability,” he said.
But Mr. Stoltmann, a member of the Public Investors Arbitration Bar Association, said the postponement of in-person arbitration hearings should be limited.
“It’s safe to say Finra gets the benefit of the doubt,” he said. “But if they extend this out indefinitely, it’s a serious issue for investors.”
In a recent blog post, Mr. Friedman wrote that the coronavirus could force Finra to turn to online arbitration and videoconferencing.
Finra’s offer of remote hearing options doesn’t reassure Adam Gana, a partner at Gana Weinstein who has some arbitration cases in the pipeline that will have to be postponed.
“I’m not sure how remote options are going to help our clients,” Mr. Gana said. “Justice delayed is no justice at all. Efficiency is the one true benefit of [the Finra arbitration system]. If it loses that, it’s going to be a real problem.”
Finra runs the arbitration forum where customer complaints against brokers and broker complaints against firms are heard. Almost every brokerage contract has a mandatory arbitration clause.