On January 11, 2024, the Securities and Exchange Commission approved a rule change to its Codes of Arbitration Procedure and Mediation Procedure — proposed by FINRA — to bar individuals who are not attorneys from representing parties in the FINRA Dispute Resolution forum. Before the rule change, FINRA banned non-attorney representation in its arbitration and mediation proceedings “only if: (1)
state law prohibits such representation; (2) the person is currently suspended or barred from the securities industry in any capacity; or (3) the person is currently suspended from the practice of law or disbarred.”

The newly-approved rule expands the ban to all compensated NARs, regardless of their disciplinary history. One notable exception to the ban is law school clinical students practicing under the supervision of an attorney. The rule will be effective once FINRA issues a Regulatory Notice.

For the complete text of and justification for the rule, see SR-FINRA-2023-13. Among other topics, the rule change justification includes FINRA’s anecdotal evidence of non-attorney representatives exploiting investors for their own gain by bringing questionable arbitration claims against brokers and then putting their own interests above their clients for settlement and other purposes. The breadth of the alleged misconduct is staggering.

Securities dispute resolution practitioners know what it means to represent individuals in a regulated ADR forum. Here is just another example of ways in which securities regulators attempt to help investors. Whether it solves one problem (abusive NARs) but creates another one (lack of access to representation) remains an open question.