FINRA Hearing Panel with Regard to Arbitration Provisions in Broker-Dealer Customer Agreements (with Lofchie Comment)

The Enforcement Division of FINRA brought three claims against Charles Schwab alleging that the firm's arbitration language in its form agreements was in violation of the FINRA rules. The language at issue concerned class actions. The Hearing Panel ruled for Schwab on two of the three claims, but for the Enforcement Division on the third. The Hearing Panel ordered Schwab to take a number of remedial measures and also fined the firm.

Lofchie Comment: Is it appropriate to fine a firm in a case such as this? A straightforward reading of the case suggests that Schwab attempted to ensure that its language complied with FINRA's requirements. The law at issue was sufficiently unclear that Schwab won on two of the three claims. Thus, it would have seemed a fairer result if the Hearing Panel required Schwab to fix the violative language but had not fined the firm (it did not seem that anyone had been damaged).

See: Charles Schwab Company, Inc. Action.See also: FINRA News Release.