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The FINRA Codes of Arbitration and
Mediation Procedure currently allow compensated non-attorney representatives
(“NAR”) to represent clients in securities arbitration and mediation subject to
some exceptions. Some parties are
represented by relatives or friends who assist with case preparation or
presentation. NAR firms typically
provide public investors an alternative to representation by attorneys in
disputes between investors and broker dealers. FINRA is conducting a review of
the efficacy of continuing to allow such representation and is accepting
comments from member firms and other interested parties.
This request for comment stems from
FINRA’s recent review that showed the following NAR firm activities have taken
place: 1) using the forum as a vehicle to employ inappropriate business
practices; 2) requiring retainer agreements that reflect a non-refundable fee
of $25,000.00; 3) representing parties in hearing locations where state law
prohibits such representation or handling only small claims decided on written
submissions to avoid hearing locations in which the unauthorized practice of
law would become an issue; 4) signing required arbitration submission
agreements with the name of the NAR firm to avoid naming an individual
representative who could be engaging in the unauthorized practice of law; 5)
pursuing frivolous or stale claims to attempt to elicit settlements; or 6)
breaching confidentiality provisions in settlement agreements by posting a
picture of the settlement check to market the NAR firm’s services.
FINRA
believes NAR firms provide a service to public investors with small claims;
however, the above allegations raise serious concerns. For instance, there are no rules of
professional conduct applicable to NAR firms’ activities, NAR firms are not
subject to malpractice insurance requirements, and NAR firms are not subject to
licensing boards. We encourage our
clients who may be impacted by any proposed rule changes restricting NAR firms
in FINRA arbitration to review Regulatory Notice 17-34, http://www.finra.org/sites/default/files/Regulatory-Notice-17-34.pdf, and submit their
comments to FINRA by December 18, 2017.