The ruling can have huge impact over the finance industry, because, once it Schwab is through, others cannot be far behind.
The Financial Industry Regulatory Panel that heard the Schwab case also differed with the opinions of FINRA and caused a seeming setback to that private organization. FINRA expressed disappointment with the decision and said it was going to review the decision to find out whether there were sufficient grounds to appeal.
Kevin Carrol, associate general of the Securities Industry and Financial Markets Associations told the media, “FINRA could appeal, but you have a fairly well developed decision here.”
The 48-page ruling held that the class-action ban under the given conditions is consistent with both federal law and recent interpretations of the Federal Arbitration Act by the Supreme Court.
The San Francisco-based Schwab, said in a statement – “Schwab is pleased with the panel’s decision … The company believes customers are better served through the existing FINRA arbitration rocess and that class –action lawsuits are a cumbersome and less effective means of resolving disputes – for both parties.”
For FINRA, the leading private group that regulates broker-dealers and administers arbitration panels, consolidated arbitration doesn’t seem appealing. FINRA had wanted Schwab punished and had charged the company last year for violating FINRA rules by limiting class-action and arbitration rights. However, the panel ruling on Thursday found that FINRA rules are not enforceable in this case because they conflict with the Federal Arbitration Act.
