Data reported by FINRA shows that fewer brokerage customers are filing arbitration claims. However, that trend is expected to flip later this year due to the steep market downturn.
In the first quarter of 2022, there were a total of 369 customer claims, compared to 523 during the same period last year. That’s a 29% drop. Similarly, the number of overall arbitration cases, which includes customer and intra-industry disputes between brokers and financial firms, totaled 632 in the first quarter versus 776 in the same timeframe last year – a 19% drop.
Despite the early drop in claims, it’s speculated that the number of arbitration cases is likely to spike as a result of current market volatility. Even though the market was considered volatile in the first quarter, cases were likely lower due to the fact that it typically takes a while for market events to result in arbitration filings. In fact, in a recent blog written by George Friedman, a former director of FINRA arbitration, it was mentioned that “Cases don’t materialize for months. Over the course of the year, customer filings will go up. People tend to fight when they’re losing money, not so much when they’re making money.”
Breaking Down Customer Arbitration Claim Types
While the numbers may be a bit low to start the year, there are still more than enough claims to keep regulators on high alert. Claims can fall into one of three categories: controversies, securities, and intra-industry. The following are the top five controversy types to result in customer arbitration claims (note that a single case can have multiple controversy or security types):
- Breach of fiduciary duty
- Failure to supervise
- Breach of contract
While many claims are controversy-related, others are securities-related. The following are the top five securities-related arbitration claims from the first quarter:
- Common stock
- Real investment trust
- Private equities
- Mutual Funds
Lastly, arbitration claims may fall into the intra-industry category. The top five claims to make this list include:
- Breach of contract
- Promissory notes
- Libel, slander or defamation
- Libel or slander on Form U-5
As we inch closer to the end of the second quarter, we’ll keep an eye out on how arbitration claims are trending.