[Federal Register Volume 89, Number 12 (Thursday, January 18, 2024)]
[Notices]
[Pages 3481-3485]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00856]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99335; File No. SR-FINRA-2023-013]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change To Amend the 
FINRA Codes of Arbitration Procedure and Code of Mediation Procedure To 
Revise and Restate the Qualifications for Representatives in 
Arbitrations and Mediations

January 11, 2024.

I. Introduction

    On October 5, 2023, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend the FINRA Code of 
Arbitration Procedure for Customer Disputes (``Customer Code''), the 
Code of Arbitration Procedure for Industry Disputes (``Industry 
Code''), and the Code of Mediation Procedure (``Mediation Code'') 
(collectively, the ``Codes''), to revise and restate the qualifications 
for representatives in arbitrations and mediations in the forum 
administered by FINRA Dispute Resolution Services (``DRS'').
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    \1\ See 15 U.S.C. 78s(b)(1).
    \2\ See 17 CFR 240.19b-4.
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    The proposed rule change was published for public comment in the 
Federal Register on October 13, 2023.\3\ The public comment period 
closed on November 3, 2023. The Commission received comment letters 
related to this filing.\4\ On November 9, 2023, FINRA consented to an 
extension of the time period in which the Commission must approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the proposed 
rule change to January 11, 2024.\5\ On January 8, 2024, FINRA responded 
to the comment letters received in response to the Notice.\6\ This 
order approves the proposed rule change.
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    \3\ See Exchange Act Release No. 98703 (Oct. 6, 2023), 88 FR 
71051 (Oct. 13, 2023) (File No. SR-FINRA-2023-013) (``Notice'').
    \4\ The comment letters are available at https://www.sec.gov/comments/sr-finra-2023-013/srfinra2023013.htm.
    \5\ See letter from Kristine Vo, Assistant General Counsel, 
FINRA, to Lourdes Gonzalez, Assistant Chief Counsel, Division of 
Trading and Markets, Commission, dated November 9, 2023. This letter 
is available at https://www.finra.org/sites/default/files/2023-11/SR-FINRA-2023-013-ExtensionNo1.pdf.
    \6\ See letter from Kristine Vo, Assistant General Counsel, 
Office of General Counsel, FINRA, to Vanessa Countryman, Secretary, 
Commission, dated January 8, 2024 (``FINRA Response'').
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II. Description of the Proposed Rule Change

A. Background

    The Codes currently permit parties to arbitrations and mediations 
in the DRS forum to represent themselves, to be represented by an 
attorney at law in good standing, or to be represented by a non-
attorney representative (``NAR'').\7\ Some NARs receive compensation in 
connection with their representation of parties (``compensated 
NARs'').\8\ Other NARs assist parties with their cases without 
compensation (``uncompensated NARs'').\9\ In addition, although the 
practice is not specifically addressed by the Codes, law students 
sometimes represent parties while practicing under the supervision of 
an attorney through securities arbitration clinics (``SACs'').\10\
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    \7\ See FINRA Rules 12208, 13208, and 14106.
    \8\ Notice at 71051.
    \9\ Id.
    \10\ Id. at 71051-52.

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[[Page 3482]]

    In response to DRS forum users' concerns regarding the conduct of 
compensated NARs, FINRA reviewed their representation of parties in 
arbitrations and mediations in the DRS forum.\11\ FINRA found that 
compensated NARs represent customers in a small percentage (one 
percent) of the customer cases in the DRS forum.\12\ Nevertheless, 
FINRA identified several allegations of improper conduct by compensated 
NARs in connection with their representation of parties in the DRS 
forum.\13\ In contrast, FINRA did not identify any allegations of 
improper conduct by uncompensated NARs or law students.\14\ FINRA 
expressed concern that parties may be harmed when compensated NARs are 
found to be engaged in the unauthorized practice of law under the law 
of the relevant United States (``U.S.'') jurisdiction.\15\ FINRA 
highlighted that compensated NARs have, for example, been enjoined from 
continuing their representation of parties during pending arbitrations 
after courts determined that the representation constituted the 
unauthorized practice of law.\16\ DRS arbitrators have also issued 
awards dismissing claims, or finding against investors, after 
determining that a compensated NAR's representation of an investor 
constituted the unauthorized practice of law in the jurisdiction.\17\
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    \11\ Id. at 71052.
    \12\ Id. at 71054.
    \13\ Id.
    \14\ Id.
    \15\ Id. at 71053.
    \16\ Id.
    \17\ Id.
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    Moreover, FINRA expressed concern that NARs are not subject to 
professional qualification requirements, ethical rules, disciplinary 
processes, and client protections that the states and other U.S. 
jurisdictions apply to attorneys who represent parties in the DRS 
forum.\18\ As such, customers of compensated NARs do not benefit from 
the client protections and disciplinary processes that apply to 
attorneys and may have limited recourse if they are harmed by the 
misconduct of compensated NARs.\19\
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    \18\ See id. at n.16 (stating that ``[g]enerally, licensed 
attorneys are required to have: (1) completed a bachelor's degree 
program (or its equivalent) and a legal education as required by a 
licensing state; (2) passed a state bar exam; (3) passed the 
Multistate Professional Responsibility Examination; (4) passed a 
licensing state's character and fitness review, which includes 
questions about academic conduct at law school, criminal history, 
social conduct in general and any applicable disciplinary actions; 
and (5) taken a [legally] binding oath with a licensing state's 
supreme court or high-court equivalent. In addition, many states 
require attorneys to complete continuing legal education, including 
ethics credits, to maintain a law license. In addition, all 
jurisdictions require lawyers to abide by rules of professional 
conduct, which are enforced through state disciplinary 
processes.'').
    \19\ Id. at 71053.
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    For the reasons discussed above, FINRA filed the proposed rule 
change to revise and restate the qualifications for representatives of 
parties using the DRS forum, as described below.\20\
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    \20\ FINRA stated that the amendments would be effective for 
arbitrations and mediations filed in the DRS forum on or after the 
effective date. Notice at 71055.
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B. Proposed Rule Change

    FINRA Rules 12208(c), 13208(c), and 14106(c) currently prohibit 
compensated and uncompensated NARs from representing parties in 
arbitration and mediation if: (1) state law prohibits such 
representation; (2) the prospective representative is currently 
suspended or barred from the securities industry in any capacity; or 
(3) the prospective representative is currently suspended from the 
practice of law or disbarred.\21\ FINRA Rules 12208(d), 13208(d), and 
14106(d) further provide that issues regarding the qualifications of a 
person to represent a party in arbitration or mediation are governed by 
applicable law and may be determined by an appropriate court or other 
regulatory agency.\22\
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    \21\ Notice at 71054.
    \22\ Id. As noted above, an arbitrator may also address issues 
regarding the qualifications of a person to represent a party in the 
DRS forum. See Notice at 71053 n.21 (citing dismissed cases 
involving findings that a compensated NAR's representation of an 
investor constituted the unauthorized practice of law).
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1. Disallowing Compensated NARs in the DRS Forum
    The proposed rule change would prohibit a person who is not an 
attorney and who receives compensation in any manner in connection with 
the representation (i.e., a compensated NAR) from representing a party 
at any stage of an arbitration or mediation proceeding. Specifically, 
the proposed rule change would state that any party in an arbitration 
or mediation proceeding held in a U.S. hearing location may be 
represented by ``a person who is not an attorney, who has not received, 
and will not receive, compensation in any manner in connection with the 
representation.'' \23\
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    \23\ Proposed Rules 12208(b)(1)(C), 13208(b)(1)(C), and 
14106(b)(1)(C).
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    To help ensure that a NAR is not receiving compensation in 
connection with their representation of a party in the DRS forum, 
proposed Rules 12208(b)(1)(C), 13208(b)(1)(C), and 14106(b)(1)(C) would 
require the NAR and the party being represented to attest that the NAR 
is not receiving compensation. Specifically, the proposed rule change 
would state that a party could be represented in arbitration or 
mediation by an uncompensated NAR, provided that ``prior to the 
representation, the person or the party files with the Director through 
the Party Portal a written statement, signed by the person and the 
party, attesting that the person has not received, and will not 
receive, compensation in connection with the representation.'' \24\
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    \24\ Proposed Rules 12208(b)(1)(C), 13208(b)(1)(C), and 
14106(b)(1)(C). Under the Customer Code and Industry Code, the term 
``Director'' means the Director of DRS. See FINRA Rules 12100(m), 
12103, 13100(m), and 13103. Under the Mediation Code, the term 
``Director'' refers to the Director of Mediation of DRS. See FINRA 
Rules 14100(d) and 14103. The Party Portal provides forum users with 
a secure, online location for claim filing and interactions relating 
to case administration. Parties use the Party Portal to, among other 
things, file claims, pay filing fees, receive documents from and 
send documents to DRS, receive service of claims, submit answers to 
claims, submit additional case documents, view the status of cases, 
select arbitrators, schedule hearings and send documents to other 
Party Portal case participants. See, e.g., FINRA Rules 12300, 12302, 
12402, 12403, 13300, 13302, and 13404. Since mediation is voluntary 
in all instances, DRS permits parties to a mediation proceeding to 
use the Party Portal on a voluntary basis to submit and view their 
mediation case information and documents. See FINRA Rule 14109(b) 
and (h); see also Notice at 71054 n.37.
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2. Codifying the Role of Law Students and SACs
    The Codes do not specifically address the representation of parties 
in the DRS forum by law students supervised by attorneys through 
SACs.\25\ The proposed rule change would amend the Codes to codify the 
current practice of allowing a party to be represented by an enrolled 
law student participating in a law school clinical program or its 
equivalent and practicing under the supervision of an attorney.\26\ 
Specifically, the proposed rule change would state that any party in an 
arbitration or mediation proceeding held in a U.S. hearing location may 
be represented by ``a student enrolled in a law school participating in 
a law school clinical program or its equivalent and practicing under 
the supervision of an attorney.'' \27\
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    \25\ See Notice at 71051-52.
    \26\ See proposed Rules 12208(b)(1)(B), 13208(b)(1)(B), and 
14106(b)(1)(B).
    \27\ See proposed Rules 12208(b)(1)(B), 13208(b)(1)(B), and 
14106(b)(1)(B).
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3. Persons Prohibited From Representing Parties in the DRS Forum
    The Codes currently provide that non-attorneys may not represent a 
party if state law prohibits such representation, the person is 
currently suspended or barred from the securities industry in

[[Page 3483]]

any capacity, or the person is currently suspended from the practice of 
law or disbarred.\28\ The proposed rule change would retain the 
substance of these provisions, while also stating that the laws of U.S. 
jurisdictions that are not states may also disqualify the person from 
representing a party.\29\ The proposed rule change would also apply 
these prohibitions generally to all persons, including attorneys.\30\ 
Furthermore, the proposed rule change would specifically preclude a 
person who is currently suspended from or denied the privilege of 
appearing or practicing before the Commission from representing a party 
in the DRS forum.\31\
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    \28\ See FINRA Rules 12208(c), 13208(c), and 14106(c).
    \29\ See proposed Rules 12208(b)(2)(A), 13208(b)(2)(A), and 
14106(b)(2)(A).
    \30\ See proposed Rules 12208(b)(2)(C), 13208(b)(2)(C), and 
14106(b)(2)(C). The prohibitions would not apply retroactively to 
persons who are suspended or barred from the securities industry and 
who are representing a party in a proceeding at the time of the 
effective date of the proposed rule change. See Notice at 71055 
n.50. The proposed rule change would apply to arbitrations and 
mediations filed in the DRS forum on or after the effective date and 
would preclude such representation going forward. Notice at 71055.
    \31\ See proposed Rules 12208(b)(2)(D), 13208(b)(2)(D), and 
14106(b)(2)(D). This prohibition would not apply retroactively to 
persons who are suspended or denied the privilege of appearing or 
practicing before the Commission and who are representing a party in 
a proceeding at the time of the effective date of the proposed rule 
change. See Notice at 71055 n.51. The proposed rule change would 
apply to arbitrations and mediations filed in the DRS forum on or 
after the effective date and would preclude representation by such 
parties going forward. Notice at 71055.
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    Specifically, the proposed rule change would state that no person 
may represent a party in an arbitration or mediation proceeding held in 
a U.S. hearing location if: ``(A) the laws of a state of the United 
States, the District of Columbia, or commonwealth, territory, or 
possession of the United States with jurisdiction over the 
representation prohibit the representation; (B) the person is currently 
suspended or barred from the securities industry in any capacity; (C) 
the person is currently suspended from the practice of law or 
disbarred; or (D) the person is currently suspended from or denied the 
privilege of appearing or practicing before the Securities and Exchange 
Commission.'' \32\
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    \32\ Proposed Rules 12208(b)(2)(D), 13208(b)(2)(D), and 
14106(b)(2)(D).
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4. Determinations of Qualifications of Representatives
    The Codes currently provide, in part, that ``[i]ssues regarding the 
qualifications of a person to represent a party in arbitration [or 
mediation] are governed by applicable law and may be determined by an 
appropriate court or other regulatory agency.'' \33\ The Codes also 
currently provide that ``[i]n the absence of a court order, the 
arbitration [or mediation] proceeding shall not be stayed or otherwise 
delayed pending resolution of such issues.'' \34\ To improve the 
clarity of these provisions, the proposed rule change would make non-
substantive changes to them.\35\ Specifically, the proposed rule change 
would state that ``[a] challenge to the qualifications of a 
representative made outside of the [arbitration or mediation] 
proceeding shall not stay or otherwise delay the [arbitration or 
mediation] proceeding in the absence of a court order.'' \36\
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    \33\ FINRA Rules 12208(d) and 13208(d); see FINRA Rule 14106(d).
    \34\ FINRA Rules 12208(d) and 13208(d); see FINRA Rule 14106(d).
    \35\ Notice at 71055.
    \36\ Proposed Rules 12208(d) and 13208(d); see proposed Rule 
14106(d).
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III. Discussion and Commission Findings

    After careful review of the proposed rule change and the comment 
letters, the Commission finds that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder that are applicable to a national securities 
association.\37\ Specifically, as explained in more detail below, the 
Commission finds that the proposed rule change is consistent with 
Section 15A(b)(6) of the Act, which requires, among other things, that 
FINRA rules be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and, in 
general, to protect investors and the public interest.\38\
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    \37\ In approving this rule change, the Commission has 
considered the rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \38\ 15 U.S.C. 78o-3(b)(6).
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A. Disallowing Compensated NARs in the DRS Forum

1. General Prohibition
    As noted above, FINRA is proposing to amend the Codes to revise and 
restate the qualifications for representatives of parties using the DRS 
forum to disallow compensated NARs from representing parties in the DRS 
forum. FINRA is proposing these rule changes in response to several 
allegations of improper conduct by compensated NARs in connection with 
their representation of parties in the DRS forum (e.g., compensated 
NARs aggressively soliciting customers to bring claims in the DRS 
forum).\39\ Specifically, FINRA stated that compensated NARs have a 
pecuniary incentive to engage in misconduct when seeking new client 
relationships or bringing claims in the DRS forum, and that parties 
harmed by such conduct lack recourse against compensated NARs who are 
not directly regulated.\40\ Nevertheless, while FINRA acknowledged that 
as a result of disallowing compensated NARs, some parties may have 
difficulty in obtaining counsel, FINRA stated that the proposed rule 
change ``balances the need for parties, including investors, to be able 
to avail themselves of representation in the DRS forum with protecting 
those parties, the integrity of the DRS forum, and the public interest 
generally from the potential harmful conduct and lack of recourse that 
may come from representation by compensated NARs.'' \41\
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    \39\ See Notice at 71052.
    \40\ FINRA also stated that although compensated NARs may be 
subject to state laws governing general business practices, they are 
not subject to the specific and extensive professional qualification 
requirements, ethical rules, disciplinary processes and client 
protections that the states and other U.S. jurisdictions apply to 
attorneys who represent parties in the DRS forum. Further, 
compensated NARs' interactions with customers are not subject to 
regulation like the state disciplinary rules on lawyer advertising 
and solicitation. See Notice at 71052-53.
    \41\ Notice at 71055-56; see also Notice at 71054, 71058. FINRA 
acknowledged that for claims of $100,000 or less, an attorney may 
believe that their share of a potential award might be too small to 
justify the effort, not all investors will qualify for assistance by 
SACs, and that investors may ultimately have to represent 
themselves. Id.
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    Commenters generally supported the proposed rule change.\42\ One 
commenter stated that ``it is in the best interest of investors to 
disallow compensated [NARs] from representing customer claimants in 
FINRA arbitration.'' \43\ A second commenter similarly stated that the 
proposed rule change would ``reduce the risk that parties, including 
investors, may be significantly harmed by the activities of compensated

[[Page 3484]]

NARs.'' \44\ A third commenter stated that ``NARs have a greater 
propensity than attorneys to engage in improper or disruptive 
conduct.'' \45\ A fourth commenter agreed with each of FINRA's 
concerns, stating that the proposed rule change is ``important and 
necessary to protect investors from improper conduct by compensated 
[NARs,] . . . who are not governed by the same constraints as licensed 
attorneys or law students under the supervision of licensed attorneys. 
. . . [A]nd individuals who fall prey to incompetent representation by 
a NAR may not have any method of recourse.'' \46\
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    \42\ See letters from Steven B. Caruso, dated October 7, 2023 
(``Caruso Letter''); Joseph C. Peiffer, President, Public Investors 
Advocate Bar, to Vanessa Countryman, Secretary, Commission, dated 
November 3, 2023 (``PIABA Letter''); Mark Quinn, Director of 
Regulatory Affairs, Cetera Financial Group, to Secretary, 
Commission, dated November 3, 2023 (``Cetera Letter''); Christine 
Lazaro, Supervising Attorney, Elizabeth Allhusen, Legal Intern, 
Camille Perbost, Legal Intern, and Elissa Germaine, Supervising 
Attorney, Securities Arbitration Clinic of St. John's University 
School of Law, to Vanessa Countryman, Secretary, Commission, dated 
November 3, 2023 (``St. John's Letter''); see also letter from Lynne 
Brundage, dated January 5, 2024 (describing an experience with the 
DRS forum that is outside the scope of the proposed rule change).
    \43\ PIABA Letter at 1.
    \44\ Caruso Letter at 3.
    \45\ Cetera Letter at 2.
    \46\ St. John's Letter at 1.
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    Compensated NARs represent claimants in a small percentage of the 
overall customer cases in the DRS forum but have demonstrated a higher 
propensity to engage in improper conduct in connection with their 
representation than their counterparts, including uncompensated 
NARs.\47\ Similarly, compensated NARs are less likely to be subject to 
professional qualification requirements, ethical rules, disciplinary 
processes, and client protections than attorneys who represent parties 
in the DRS forum.\48\ Further, compensated NARs' interactions with 
customers are not subject to regulation like the state disciplinary 
rules on lawyer advertising (e.g., failure to disclose disciplinary 
history or assuring customers that they would recover investments).\49\ 
Thus, to the extent compensated NARs aggressively solicit customers to 
bring claims in the DRS forum, pursue frivolous claims, charge clients 
non-refundable fees, or engage in additional misconduct, including the 
unauthorized practice of law, customers generally would not have 
recourse that would be available had they engaged an attorney.\50\ By 
prohibiting compensated NARs from representing parties in the DRS 
forum, the proposed rule change removes the participation of 
individuals who have a financial incentive to engage in improper 
conduct in connection with their representation of parties in the DRS 
forum. As such, excluding compensated NARs from the DRS forum is a 
reasonable approach to help ensure that persons representing claimants 
in the DRS forum for compensation adhere to professional standards and 
can be held to account when they do not (e.g., attorneys) or lack the 
pecuniary incentive to engage in improper conduct (e.g., uncompensated 
NARs).
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    \47\ See supra notes 12-13.
    \48\ See supra note 18.
    \49\ See supra note 40 and Notice at 71061.
    \50\ See Notice at 71052-53.
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    The Commission recognizes that some claimants with smaller claims 
who might have otherwise considered representation by a compensated NAR 
may have more difficulty obtaining representation as a result of the 
proposed rule change. Similarly, claimants with smaller claims may 
incur additional costs to retain an attorney or risk worse outcomes by 
representing themselves at a hearing. However, these concerns are 
outweighed by the threat of harm, including harm to investors, 
presented by compensated NARs whose interactions with customers are not 
subject to professional standards of conduct. Furthermore, because 
compensated NARs represent only a small percentage (one percent) of 
parties in the DRS forum, the potential impact of the proposed rule 
change on representation within the DRS forum may be limited and is 
thus a reasonable way for FINRA to prevent potential harms caused by 
compensated NARs without unduly impacting representation within the DRS 
forum.
2. Statement of No Compensation for Uncompensated NAR Representation
    As noted above, the proposed rule change provides that a party 
could be represented in arbitration or mediation by an uncompensated 
NAR, provided that prior to the representation, the uncompensated NAR 
or party files the required written attestation with the Director of 
DRS. Commenters generally supported the proposed rule change.\51\
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    \51\ See Caruso Letter, PIABA Letter, Cetera Letter, and St. 
Johns Letter.
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    The proposed rule change requiring a written attestation that a NAR 
has not received and will not receive compensation in connection with 
its representation of a party is a reasonable obligation that would 
permit FINRA to verify that the NAR is uncompensated and help to ensure 
that all parties are aware of this requirement, thus supporting the 
regulatory goal of excluding compensated NARs from the DRS forum. For 
these reasons, the proposed rule change is reasonable.

B. Codifying the Role of Law Students and SACs

    As noted above, FINRA stated that it is proposing to amend the 
Codes to codify the current practice whereby a party may be represented 
by a student enrolled in a law school participating in a law school 
clinical program or its equivalent and practicing under the supervision 
of an attorney. FINRA stated that SACs and the law students who 
participate in these programs provide an inexpensive option for 
customers who qualify and may not be able to find or afford an 
attorney. Moreover, these representations may be regulated by state 
rules that govern the performance of legal services by law students and 
the attorneys who supervise them.\52\ Accordingly, FINRA stated that it 
would be appropriate to codify the role of law students in providing 
representation to investors through SACs.\53\
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    \52\ See Notice at 71055.
    \53\ Id.
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    Commenters generally supported the proposed rule change.\54\ One of 
these commenters stated that for a clinic that provides pro bono 
representation to investors who otherwise are unable to find an 
attorney due to the size of their claims or the uncertainty of 
collectability, ``it is critical that law school students in clinic 
programs remain able to represent customers in the DRS forum to fill 
the access to justice gap with ethical representation for investors who 
cannot otherwise afford it.'' \55\ Similarly, a second commenter stated 
that it supports the proposed rule change ``because it benefits both 
the parties and the system by helping to assure that parties have 
access to expertise that they may lack or cannot afford to pay for.'' 
\56\ In order to improve parties' access to representation in the DRS 
forum, this commenter recommended that FINRA study what it means to be 
the ``equivalent'' to a law school clinic within the meaning of the 
proposed rule change. Specifically, the commenter suggested that FINRA 
(1) determine if such institutions exist and, if they do, (2)(a) 
consider what qualifications or restrictions may be necessary to allow 
them to represent parties in the DRS forum and (b) consider and publish 
standards for programs that would satisfy the ``or equivalent'' 
provision in proposed Rule 12208(b)(1)(B).\57\ In response, FINRA 
stated that it included the ``or equivalent'' provision in the proposed 
rule change ``to account for flexibility in law school programs (e.g., 
a law school without a formal clinical program, but that has students

[[Page 3485]]

providing legal services under the supervision of a law school 
professor).'' \58\ Further, while FINRA is not aware of any such 
programs at this time, should one arise, FINRA would ``make an 
evaluation on a case-by-case basis and provide guidance as 
appropriate.'' \59\
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    \54\ See Caruso Letter, PIABA Letter, Cetera Letter, and St. 
Johns Letter.
    \55\ St John's Letter at 2.
    \56\ See Cetera Letter at 2; see also Caruso Letter (stating 
that the Commission should approve the proposed rule change 
codifying the current practice governing SACs on an expedited 
basis).
    \57\ See Cetera Letter at 2-3. While the proposed rule change 
does not identify programs that are ``equivalent'' to a law school 
clinic at this time, it leaves open the opportunity to capture such 
a program if one were to come forward.
    \58\ FINRA Response at 2.
    \59\ Id.
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    Currently, a party in arbitration or mediation may be represented 
by a student enrolled in a law school participating in a law school 
clinical program or its equivalent and practicing under the supervision 
of an attorney. This practice, however, is not currently codified in 
the FINRA rulebook. Accordingly, parties may not be aware that this 
option is available when they are seeking representation. The proposed 
rule change should help make customers seeking to use the forum aware 
of this alternative option for representation. Similarly, it should 
also provide clarity to law school students and the attorneys that 
supervise them. Law school clinical programs lack the pecuniary 
incentive to engage in the conflicted conduct described above and are 
under the supervision of attorneys, thus helping to ensure that a 
customer's representative is subject to professional standards of 
conduct. As such, the proposed rule change reasonably balances the 
needs of customers who might otherwise be unable to obtain legal 
representation with protecting parties from the conflicts associated 
with compensated NARs.

C. Persons Prohibited From Representing Parties in the DRS Forum

    As noted above, the Codes currently provide that non-attorneys may 
not represent a party if state law prohibits such representation, the 
person is currently suspended or barred from the securities industry in 
any capacity, or the person is currently suspended from the practice of 
law or disbarred.\60\ The proposed rule change is retaining the 
substance of the current provisions but would expand the scope of the 
rule in three ways.
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    \60\ See FINRA Rules 12208(c), 13208(c), and 14106(c).
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    First, the proposed rule change would add that the laws of U.S. 
jurisdictions that are not states (i.e., the District of Columbia, or a 
commonwealth, territory, or possession of the United States) may also 
disqualify the person from representing a party.\61\ FINRA stated that 
the current rule's prohibition on representing a party if state law 
prohibits the representation does not fully address FINRA's concerns 
with the unauthorized practice of law by compensated NARs because it is 
not always clear in advance of the arbitration or mediation whether a 
compensated NAR's representation of a party in arbitration or mediation 
in a particular jurisdiction is legally permissible. As such, 
incorporating this new, broader standard into the proposed rule change 
would help protect the integrity and quality of the DRS forum and 
protect investors by incorporating the disqualification provisions of 
all relevant jurisdictions.\62\
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    \61\ Notice at 71055.
    \62\ Id. at 71055.
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    Second, the proposed rule change would prohibit all persons, not 
just non-attorneys, from practicing in the DRS forum who meet the 
aforementioned conditions.\63\ FINRA stated that all persons, including 
attorneys, should be prohibited from practicing in the DRS forum if 
these conditions apply.\64\
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    \63\ Id.
    \64\ Id.
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    Third, the proposed rule change would preclude a person who is 
currently suspended from, or denied the privilege of, appearing or 
practicing before the Commission from representing a party in the DRS 
forum.\65\ As with the above changes, FINRA stated that incorporating 
this standard into the proposed rule change would help protect the 
integrity and quality of the DRS forum and protect investors.\66\
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    \65\ See proposed Rules 12208(b)(2)(D), 13208(b)(2)(D), and 
14106(b)(2)(D). FINRA stated that this prohibition would not apply 
retroactively to persons who were suspended or denied the privilege 
of appearing or practicing before the Commission prior to the 
effective date of the proposed rule change. See Notice at 71055 
n.51.
    \66\ Notice at 71055.
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    Commenters generally supported the proposed rule change.\67\
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    \67\ See Caruso Letter, PIABA Letter, Cetera Letter, and St. 
Johns Letter.
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    The proposed rule change's expansion of the categories of persons 
prohibited from representing parties in the DRS forum are reasonable to 
help prohibit problematic representatives from appearing in the DRS 
forum. Specifically, expanding the rule to provide that the laws of any 
U.S. jurisdiction, and not only states, may disqualify the person from 
representing a party helps ensure that persons in all relevant 
jurisdictions are covered by the rules' prohibitions. Similarly, 
expanding the prohibitions to apply to all persons, not just attorneys, 
helps ensure that any person with a demonstrated track record of 
misconduct would be precluded from representing parties in the DRS 
forum. Further, precluding a person who is currently suspended from, or 
denied the privilege of, appearing or practicing before the Commission 
from representing a party in the DRS forum precludes another group of 
persons with a demonstrated track record of misconduct from 
representing parties in the DRS forum. By excluding problematic 
representatives from, and at the beginning of, the DRS process, the 
proposed change is a reasonable way to help enhance the integrity of 
those individuals representing parties in the DRS forum.

D. Determinations of Qualifications of Representatives

    As noted above, the proposed rule change would make some clarifying 
changes to the current provision that prevents delay of a proceeding 
while a challenge to the qualifications of a person to represent a 
party is resolved outside of the DRS forum. Specifically, the proposed 
rule change would simplify the Codes' language to state that a 
challenge to the qualifications of a representative made outside of the 
arbitration proceeding shall not stay or otherwise delay the proceeding 
in the absence of a court order. Commenters generally supported the 
proposed rule change.\68\ The proposed change makes no substantive 
changes to the rule, and reasonably clarifies the language regarding 
challenges outside of the DRS forum that could affect the progression 
of an active proceeding.
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    \68\ See Caruso Letter, PIABA Letter, Cetera Letter, and St. 
Johns Letter.
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IV. Conclusion

    For the reasons set forth above, the Commission finds that the 
proposed rule change is consistent with Section 15A(b)(6) of the Act, 
which requires, among other things, that FINRA rules be designed to 
prevent fraudulent and manipulative acts and practices, promote just 
and equitable principles of trade, and, in general, protect investors 
and the public interest.\69\
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    \69\ 15 U.S.C. 78o-3(b)(6).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\70\ that the proposal (SR-FINRA-2023-013), be and hereby is approved.
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    \70\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\71\
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    \71\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-00856 Filed 1-17-24; 8:45 am]
BILLING CODE 8011-01-P