For updates and guidance related to COVID-19 / Coronavirus, click here.
1200. Arbitration and Mediation
(a) Application of FINRA Rule 12000 Series (Code of Arbitration Procedure for Customer Disputes), FINRA Rule 13000 Series (Code of Arbitration Procedure for Industry Disputes) and FINRA Rule 14000 Series (Code of Mediation Procedure) to Funding Portals
All funding portal members shall be subject to the FINRA Rule 12000 Series, FINRA Rule 13000 Series and FINRA Rule 14000 Series, unless the context requires otherwise, provided, however, that:
(1) the term "member" as used in the FINRA Rule 12000 Series, FINRA Rule 13000 Series and FINRA Rule 14000 Series shall mean "funding portal member" as defined pursuant to Funding Portal Rule 100(b)(6);
(2) the term "associated person" as used in the FINRA Rule 12000 Series, FINRA Rule 13000 Series and FINRA Rule 14000 Series shall mean "associated person of a funding portal member" or "person associated with a funding portal member" as defined pursuant to Funding Portal Rule 100(b)(1);
(3) the terms "rules" and "FINRA rules" as used in the FINRA Rule 12000 Series, FINRA Rule 13000 Series and FINRA Rule 14000 Series shall include the Funding Portal Rules; and
(4) the term "customer" as used in the FINRA Rule 12000 Series, FINRA Rule 13000 Series and FINRA Rule 14000 Series shall include investors as such term is used throughout the Funding Portal Rules.
(b) Predispute Arbitration Agreements for Investor Accounts
(1) Any predispute arbitration clause shall be highlighted and shall be immediately preceded by the following language in outline form:
"This agreement contains a predispute arbitration clause. By signing an arbitration agreement the parties agree as follows:
(A) 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.
(B) Arbitration awards are generally final and binding; a party's ability to have a court reverse or modify an arbitration award is very limited.
(C) The ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration than in court proceedings.
(D) The arbitrators do not have to explain the reason(s) for their award unless, in an eligible case, a joint request for an explained decision has been submitted by all parties to the panel at least 20 days prior to the first scheduled hearing date.
(E) The panel of arbitrators may include a minority of arbitrators who were or are affiliated with the securities industry.
(F) The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court.
(G) The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this agreement."
(A) In any agreement containing a predispute arbitration agreement, there shall be a highlighted statement immediately preceding any signature line or other place for indicating agreement that states that the agreement contains a predispute arbitration clause. The statement shall also indicate at what page and paragraph the arbitration clause is located.
(B) Within 30 days of signing, a copy of the agreement containing any such clause shall be given to the investor and the funding portal member shall retain proof of delivery or of the investor's acknowledgement of receipt.
(A) Within ten business days of receipt of the investor's request, a funding portal member shall provide an investor with a copy of any predispute arbitration clause or investor agreement executed between the investor and the funding portal member.
(B) Upon request by an investor, a funding portal member shall provide the investor with the names of, and information on how to contact or obtain the rules of, all arbitration forums in which a claim may be filed under the agreement.
(4) No predispute arbitration agreement shall include any condition that:
(A) limits or contradicts the rules of any self-regulatory organization;
(B) limits the ability of a party to file any claim in arbitration;
(C) limits the ability of a party to file any claim in court permitted to be filed in court under the rules of the forums in which a claim may be filed under the agreement; or
(D) limits the ability of arbitrators to make any award.
(5) If an investor files a complaint in court against a funding portal member that contains claims that are subject to arbitration pursuant to a predispute arbitration agreement between the funding portal member and the investor, the funding portal member may seek to compel arbitration of the claims that are subject to arbitration. If the funding portal member seeks to compel arbitration of such claims, the funding portal member must agree to arbitrate all of the claims contained in the complaint if the investor so requests.
(6) All agreements shall include a statement that "No person shall bring a putative or certified class action to arbitration, nor seek to enforce any pre-dispute arbitration agreement against any person who has initiated in court a putative class action; or who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until: (i) the class certification is denied; or (ii) the class is decertified; or (iii) the investor is excluded from the class by the court. Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any rights under this agreement except to the extent stated herein."
Adopted by SR-FINRA-2015-040 eff. Jan. 29, 2016.
Selected Notice: 16-06.