SEC Stays Its Order Approving FINRA Rule Change Barring Compensated Non-Attorney Representation

Last month, I blogged here about an important rule change that the SEC approved for FINRA Dispute Resolution. After years of debate about the potential harm to investors by allowing non-attorneys to represent investors in securities arbitration and mediations, FINRA proposed barring them from its forum, if they are compensated. [See the prior post for more details of the rule change.] The SEC’s Division of Trading and Markets, acting pursuant to authority delegated by the Commission, approved that rule change proposal on Jan. 11, 2024, and the approval order was published in the Federal Register on Jan. 18.

The very next day, on January 19, 2024, the SEC wrote to FINRA notifying it “that, pursuant to Rule 431 of the Commission’s Rules of Practice, 17 CFR 201.431, the Commission will review the delegated action. In accordance with Rule 431(e), the January 11, 2024 order is stayed until the Commission orders otherwise.”

This is a highly unusual action. For the Commission to stay an order approved by one of its Divisions, there must have been quite a disconnect between Commissioners and SEC staff.

It is hard to know the reasons for the sudden stay. In my prior post, I wondered “[w]hether [the rule change] solves one problem (abusive NARs) but creates another one (lack of access to representation).” Perhaps the Commission realized the rule change was more controversial than it had realized because it could be construed as precluding investors from representation of their choice? Stay tuned.

One thought on “SEC Stays Its Order Approving FINRA Rule Change Barring Compensated Non-Attorney Representation”

  1. This is, to my recollection, unprecedented. FINRA’s reasons for implementing this long-sought and necessary prohibition outweighs any slight adverse effects. FINRA, by this new rule, seeks to protect investors who were allegedly abused by their brokers – who then were taken advantage of by NARs. David E. Robbins

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.