FINRA Rejects Forum Selection Provisions That Prohibit Bringing Arbitration Claims Before FINRA

On July 21, 2016, the Financial Industry Regulatory Authority ("FINRA") issued Regulatory Notice 16-25 ("Notice 16-25" or the "Notice"), see http://www.finra.org/industry/notices/16-25, which prohibits member firms from including in contracts forum selection provisions that would restrict customers or associated persons from filing an arbitration claim before FINRA. FINRA warned that member firms using pre-dispute agreements contrary to this principle may be subject to disciplinary action. 

Associated Person Disputes

The Notice expresses disapproval of pre-dispute forum selection provisions between member firms and associated persons. In doing so, FINRA rejects court precedent, including rulings of the Second Circuit Court of Appeals, holding that the requirements of Rule 13200 can be waived in a pre-dispute arbitration agreement. According to FINRA, these holdings rest on the incorrect assumption that the duty to arbitrate before FINRA and under FINRA rules