FINRA Proposes Special Procedure for Simplified Cases

The Financial Industry Regulatory Authority (FINRA) proposes to amend the Code of Arbitration Procedure for Customer Disputes and the Code of Arbitration Procedure for Industry Disputes to include a Special Proceeding for Simplified Arbitration. FINRA claims involving $50,000 or less would benefit by having an additional, intermediate form of adjudication that would provide the chance to argue cases before an arbitrator in a shorter, limited telephone hearing format. The Special Proceeding would be limited to two hearing sessions. 

The highlights: 

• A Special Proceeding would be held by telephone unless the parties agree to another method of appearance 
• The claimants, collectively, would be limited to two hours to present their case and 1⁄2 hour for any rebuttal and closing statement, exclusive of questions from the arbitrator and responses to such questions 
• The respondents, collectively, would be limited to two hours to present their case and 1⁄2 hour for any rebuttal and closing statement, exclusive of questions from the arbitrator and responses to such questions 
• Notwithstanding the above-mentioned conditions, the arbitrator would have the discretion to cede his or her allotted time to the parties; in no event could a Special Proceeding exceed two hearing sessions, exclusive of prehearing conferences 
• The parties would not be permitted to question the opposing parties’witnesses 
• A customer could not call an opposing party, a current or former associated person of a member party, or a current or former employee of a member party as a witness, and members and associated persons could not call a customer of a member party as a witness 

FINRA believes the proposed rule change would provide parties with claims of $50,000 or less with an additional, cost-effective hearing option for resolving disputes and limit the potential costs of a hearing and provide parties with the opportunity to present their case without cross-examination from their opponents.

The ability to present their case without cross-examination may benefit those who would otherwise be intimidated by a direct confrontation. FINRA believes that the broader role of arbitrators for a Special Proceeding in asking questions of the parties would serve a similar function to cross-examination, effectively charging the arbitrator with clarifying issues, and asking questions necessary to assess witness credibility.