The Financial Industry Regulatory Authority's Board on Thursday found that Charles Schwab & Co. violated FINRA rules when the firm attempted to keep investors from participating in judicial class actions by adding waiver language to customer account agreements.
The ruling affirms in part and reverses in part an earlier FINRA Hearing Panel decision, in which the panel found that Schwab's waiver violated FINRA rules that limit the language that firms may place in pre-dispute arbitration agreements but concluded that FINRA could not enforce those rules because they were in conflict with the Federal Arbitration Act (FAA).
The Board, FINRA said, overturned this finding and determined that the FAA does not preclude FINRA's enforcement of its rules.
In addition, the Board upheld the Hearing Panel's determination that Schwab's attempt to prevent FINRA arbitrators from consolidating more than one party's claims in a FINRA arbitration forum violated FINRA rules.
As FINRA explains, the Board decision would have remanded the case to the Hearing Panel for a determination of appropriate sanctions.
However, Schwab instead entered into a settlement, agreeing to pay a fine of $500,000 and to notify all of its customers that the class action waiver requirement has been withdrawn from its customer account agreements and is no longer in effect. "This fully resolves the matter," FINRA said.
Schwab said in a statement that it is "pleased to resolve this dispute with FINRA, and to put to rest any client concerns on this issue. Over the last year, we heard clearly that a number of our clients and members of the general public have strong feelings about maintaining access to class action lawsuits. In a business like ours where our reputation and public trust are key to our success, we take perspectives like those very seriously."
