State Securities Regulators Seek Federal Legislation to Ban Mandatory Arbitration

Mar 8, 2013

On behalf of Thomas Costello of Costello Law Group

State regulators are urging Congress to request that the Securities and Exchange Commission (SEC) propose a regulation banning pre-dispute arbitration clauses in brokerage contracts. “States are seeing the emergence of mandatory pre-dispute arbitration clauses in contracts between state regulated investment advisers and their clients, despite the investment advisers’ fiduciary duty,” said Pennsylvania’s securities commissioner, Steve Irwin.

A pre-dispute arbitration clause is the process by which the parties sign an agreement, prior to any issues or problems arising, mandating that any disputes the parties have will be handled not in a court system, but through binding arbitration. The SEC has the power to create a rule banning pre-dispute arbitration through the Dodd-Frank Act. The state regulators acknowledge that they have a hard road ahead of them but are hopeful that they can build support.

For more information on the legislative ban on mandatory arbitration please visit: Investment News


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