FINRA Sues BD for Including Class Action Waiver in Client Agreement
FINRA has filed an enforcement action against a large broker-dealer/custodian for requiring customers to waive their right to bring or participate in class actions. According to FINRA, the class action waiver contained in the client agreement violates FINRA rules because FINRAâ€™s Code of Arbitration Procedure permits class actions. Therefore, the class action waiver contradicts the rules of an SRO.
OUR TAKE: FINRAâ€™s reasoning is weak. Just because FINRA arbitration allows class actions does not mean that firms are prohibited from including class action waivers. FINRA appears to be adopting a new rule through enforcement litigation. Is this yet another reason why advisers fear FINRA as a regulator?