Quick Answer
Mediation is a voluntary, informal process where a neutral mediator helps the parties reach their own settlement rather than imposing one. It is not binding until a settlement agreement is signed, over 80% of mediations settle, and either party can walk away or move on to arbitration at any point.
Arbitration is not the only option for resolving disputes. FINRA also offers mediation: a faster, less formal process governed by the Code of Mediation Procedure.
What Is FINRA Mediation?
Mediation is a voluntary and informal dispute resolution process:
- Requires the written agreement of all parties to participate; no one can be forced into mediation
- A trained, neutral mediator facilitates negotiations between the parties
- The mediator does not impose a decision; the goal is a mutually acceptable settlement
- Over 80% of mediations result in a settlement
- Generally faster and less expensive than arbitration
Exam Tip: Gotchas
- Mediation is VOLUNTARY for all parties. Arbitration is typically MANDATORY for industry disputes and when a predispute agreement exists.
- Mediation is NOT binding until the parties sign a settlement agreement. Before that point, either party can walk away.
How Does Mediation Compare to Arbitration?
Key differences between mediation and arbitration:
| Feature | Mediation | Arbitration |
|---|---|---|
| Voluntary? | Yes; all parties must agree | Mandatory if predispute agreement exists or industry dispute |
| Binding? | Not binding until a settlement agreement is signed | Final and binding |
| Decision-maker | The parties decide (mediator facilitates) | Arbitrator(s) decide and impose a ruling |
| Formality | Informal | Formal (testimony, evidence, discovery) |
| Outcome | Settlement agreement (or no agreement) | Award imposed by arbitrator(s) |
| Cost/time | Generally faster and less expensive | More time-consuming and costly |
| Success rate | Over 80% result in settlement | N/A |
Exam Tip: Gotchas
- If a question asks which method results in a binding decision imposed by a neutral third party, the answer is arbitration, not mediation. The mediator facilitates; only arbitrators impose decisions.
When Is Mediation Used?
- Available at any time: before, during, or after arbitration proceedings
- Often used as a first step before escalating to arbitration
- Parties retain the right to proceed to arbitration if mediation fails
- Mediation communications are confidential and cannot be used as evidence in a subsequent arbitration or litigation
Think of it this way: Mediation is like having a skilled negotiator help two sides reach a deal. Arbitration is like having a private judge decide the case. If the negotiation fails, you can still go to the judge.
What Should You Check on Exam Day?
- Mediation is voluntary for every party and requires their written agreement; arbitration is mandatory when a predispute agreement or industry dispute applies.
- Mediation is not binding until a settlement agreement is signed; arbitration is final and binding once the award issues.
- If a question asks which method imposes a decision through a neutral third party, the answer is arbitration, not mediation.
- Mediation communications stay confidential and cannot resurface as evidence if the case later goes to arbitration or court.