Strengthening FINRA Arbitration Would Promote Fairness, Efficiency, and Confidence

• FINRA arbitration resolves nearly all disputes between broker-dealers and their customers and employees, making the forum’s fairness and efficiency critically important.
• For many investors and disputes, FINRA arbitration is the most cost-effective option, but this is not always the case for an increasing volume of more complex disputes.
• SIFMA is urging FINRA to implement critical reforms to enhance the fairness, integrity, and transparency of the FINRA arbitration forum.
• These changes would strengthen confidence in the forum while continuing to protect investors.

Virtually all disputes between broker-dealers, associated persons, and customers are resolved in FINRA’s arbitration forum. Given the forum’s central role in the securities industry, it is essential that it operates efficiently and delivers fair and predictable outcomes to all participants. But as markets evolve and disputes become more complex, shortcomings in the FINRA arbitration process have the potential to undermine the efficiency and fairness of the forum. Thus, reform is needed to preserve the benefits of the FINRA arbitration process, while also enhancing its transparency and parties’ confidence in the process.

The time has come for FINRA to take action to address critical issues that, left unaddressed, could undermine the FINRA arbitration process. In a July 2025 letter, SIFMA called on FINRA to implement targeted recommendations designed to reduce inefficiencies and improve the fairness of FINRA arbitration, while also continuing to ensure robust investor protections. SIFMA also identified FINRA arbitration reform as a top priority in its response to FINRA’s rule modernization review under Regulatory Notice 25-04.

SIFMA appreciates FINRA’s attention to these issues and looks forward to much needed changes by FINRA to improve its arbitration forum.

Key Recommendations

SIFMA’s recommendations for reform focus on five key areas where straightforward changes could make a real difference:

• Allow limited flexibility to use alternative forums for certain claims.
  In narrow and clearly defined circumstances – such as high-value and complex claims, institutional investor claims, or industry disputes – FINRA should allow parties to agree to resolve claims outside the FINRA arbitration forum. These cases are more complex, do not raise the same investor protection concerns as traditional retail disputes, and limited flexibility could lead to more efficient outcomes and free up FINRA resources for retail investors.
• Permit parties to reasonably limit punitive damages.
  FINRA rules currently prevent firms and customers from agreeing to limit punitive damages in arbitration, even when such limits are permitted under applicable state law. Allowing parties to follow applicable law would help promote consistency and predictability, particularly given the limited ability to appeal arbitration awards.
• Provide clearer guidance for Form U5 defamation claims.
  Form U5 defamation claims continue to be a common feature of FINRA arbitration. Clearer guidance and targeted training for arbitrators on the applicable legal standards would help ensure these claims are handled consistently and fairly.
• Update procedural rules to improve efficiency.
  Updates to rules governing early dismissal of claims, discovery, and hearing management would help address threshold issues sooner and keep cases moving in a timely and cost-effective manner.
• Continue to strengthen arbitrator quality and accountability.
  SIFMA supports FINRA’s previous efforts to enhance arbitrator qualifications and training. But SIFMA members have also frequently experienced arbitrator quality issues. In light of that, additional training, fair compensation, and effective oversight could help to further strengthen confidence in the arbitration process, particularly as cases grow more complex.

A Targeted Path Forward

SIFMA’s recommendations would not change the fundamental nature of FINRA arbitration. To the contrary, they are designed to build on FINRA’s existing efforts and ensure the forum continues to meet the needs of investors, firms, and regulators alike.

By addressing SIFMA’s targeted areas of recommendation, FINRA can strengthen its arbitration forum and reinforce its role as a trusted mechanism for dispute resolution – supporting transparency and confidence in the markets and the regulatory framework that governs them.