On March 7, 2016, Lax & Neville LLP, together with a number of other concerned law firms, submitted a letter to Financial Industry Regulatory Authority (“FINRA”) urging it to take action in light of Credit Suisse’s repeated violations. In particular, the letter sought to address Credit Suisse’s current Employment Dispute Resolution Program (EDRP), which prevents employees from exercising their right to resolve disputes through FINRA arbitrations. A second letter was sent to FINRA on July 19, 2016.
On July 22, 2016, FINRA released a Regulatory Notice addressing “Forum Selection Provisions Involving Customers, Associated Persons and Member Firms.” Therein, FINRA stated that it “considers actions by member firms that require associated persons to waive their right under the Industry Code to arbitration of disputes at FINRA in a predispute agreement as a violation of FINRA Rule 13200 and as conduct inconsistent with just and equitable principles of trade and a violation of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade).” FINRA further noted, “a member firm cannot use an existing non-compliant agreement as a basis to deny an associated person the right to FINRA arbitration as specified in FINRA rules, without violating FINRA rules.” Accordingly, FINRA has determined that the EDRP, which Credit Suisse has insisted its employees follow, violates FINRA rules and cannot be relied upon in resolving disputes with Credit Suisse.
The Regulatory Notice further noted that FINRA has a statutory obligation to enforce compliance by member firms and warned that “[m]ember firms with provisions in predispute agreements that do not comply with FINRA rules may be subject to disciplinary action.” Specifically, “FINRA may sanction its members or associated persons for violating any of its rules by ‘expulsion, suspension, limitation of activities, functions, and operations, fine, ensure, being suspended or barred from being associated with a member, or any other fitting sanction.’” In light of this, FINRA recommends that member firms review their predispute agreements to ensure compliance.