Overview of Arbitration & Mediation
Arbitration and mediation are both non-judicial forms of dispute resolution. While in most instances attorneys will be present, the outcomes are not decided by a court of law, but by the arbitration panel; or with the assistance of a mediator.
Arbitration
Arbitration is similar to going to court, but more efficient, cost effective, and less complex than litigation. It is a formal process where parties select a neutral third party, called an arbitrator, to resolve a dispute. In the majority of cases, attorneys represent the parties involved in the dispute; there is a discovery process; there could be hearings; parties may testify under oath; and the arbitrator(s) will render a final and binding decision.
The amount of the claim determines how the claim will be heard and the amount of arbitrators. Claims involving more than $100,000 require a hearing decided by a panel of three arbitrators. Smaller claims are decided by one arbitrator and the smallest—claims of up to $50,000—may be decided through a Simplified Arbitration Process, with the arbitrator deciding the case by reviewing all the written materials presented by the parties without a hearing.
Arbitrators who hear or review disputes are not employees of FINRA, but work on a case-by-case basis as independent contractors. FINRA’s roster of over 8,100 arbitrators is comprised of individuals who come from diverse professions from both within and outside of the financial industry. Qualified arbitrators receive thorough training before they hear any cases and must adhere to a Code of Ethics.
Mediation
Mediation offers a flexible alternative to arbitration, and can be initiated at any time before—sometimes called a "straight-in mediation request"—or during the arbitration process. It is an informal process in which the parties agree to voluntarily work with a trained, neutral mediator who facilitates negotiations between disputing parties, helping them find a mutually acceptable solution. Both parties in a dispute must agree to mediation. However, FINRA does not require parties to mediate.
More than 80 percent of mediations result in a settlement, and in most cases the process is significantly faster and less costly than arbitration. Mediation does not impose a solution and it is not binding until the parties reach and sign a settlement agreement. If a settlement cannot be reached, the parties are welcome to continue with the arbitration process.
Unlike an arbitrator, a mediator has no power to decide a dispute. Rather, the mediator’s role is to facilitate conversations between the parties to help them come to a resolution. And while arbitrators can have a variety of professional backgrounds, mediators must have experience in the securities field, they must provide several reference letters from previous service as a mediator, and they are required to undergo thorough training.
Comparison Between Arbitration & Mediation
| Arbitration | Mediation |
|---|---|
| Adjudication | Expedited negotiation |
| Arbitrator determines the outcome. | Parties decide outcome, Mediator does not have the power to decide. |
| Final and binding decision. | Parties must decide and approve settlement |
| Discovery is required | Exchange of information is voluntary and is often limited; Information exchanged to assist in reaching a resolution |
| Arbitrator listens to facts and evidence and renders an award | Mediator helps the parties define and understand the issues and each side's interests |
| Parties present case, testify under oath | Parties share feelings to the mediator and tell their side of the story, engage in creative problem-solving |
| Process is formal | Process is informal |
| Attorneys are present and control party participation | Parties and attorneys are active participants |
| Evidentiary hearings; No private communication with the arbitrator |
Joint and private meetings between individual parties and their counsel with the mediator |
| Decision based on facts, evidence, and law | Outcome based on needs and wants of parties |
| Result is win/lose award | Result is mutually satisfactory |
| More expensive than mediation, but less expensive than traditional litigation | Low cost, usually less costly than court and arbitration |
| The arbitration case is confidential but awards are publicly available | Private and confidential |
| If the case settles, an arbitration will last around one year. If the case goes to hearing, an arbitration typically takes 16 months | Most mediations take a little over three months to complete |
For a list of terms and their meanings, please refer to the Dispute Resolution Glossary.