On April 9, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 20-11 to amend FINRA’s Code of Arbitration Procedure for Customer Disputes (Customer Code) to expand a customer’s options to withdraw an arbitration claim if a member firm or an associated person becomes inactive.

Under FINRA Rule 12202, a customer’s claim against an inactive firm is ineligible for arbitration unless the customer agrees in writing to arbitrate after the claim arises (i.e., when the customer claimant first files the arbitration claim). However, the Customer Code does not address situations where a member firm becomes inactive during a pending arbitration. In addition, the Customer Code does not provide specific procedures for a customer to withdraw, and file in court, a claim against an associated person who becomes inactive before the customer files a claim or during a pending arbitration.

Under the amendments, if a member firm or an associated person is inactive at the time a claim is filed, the claim is ineligible for arbitration unless the customer claimant agrees in writing to arbitrate after the claim arises. If a member firm or an associated person becomes inactive during a pending arbitration, FINRA will notify the customer claimant of the status change, and the customer claimant may withdraw the claim or claims, amend the pleading to add a claim or new party without prior approval by a panel, or postpone a scheduled hearing that is within 60 days of the date the customer claimant receives the notice from FINRA. The amendments retain the customer’s option to request a default proceeding against an inactive member or associated person.

The amendments are effective for cases filed on or after June 29, 2020. The Notice is available here.