FINRA to Allow Customers to Rescind an Arbitration Claim against Inactive Members

FINRA amended its Code of Arbitration Procedure for Customer Disputes (a/k/a "Customer Code") to allow a customer to modify or rescind an arbitration claim if a firm or associated person becomes inactive during a pending arbitration or before such a claim is filed.

Within 60 days of receiving notice from FINRA that a member firm or associated person has become inactive, the claimant may choose to (i) withdraw the claim, (ii) add a claim or new party, or (iii) delay the scheduled hearing. Among other options, this will give the customer claimant the ability to proceed against a defendant in court, even if the customer previously signed a pre-dispute arbitration agreement. FINRA noted that customers will continue to be allowed to request a default proceeding against an inactive member.

The amendments will go into effect on June 29, 2020.