Recently we have seen a rise in the popularity of arbitration to resolve disputes in the finance sector. So, how can you tailor arbitration to the needs of specific banking and finance disputes? Well, here is how you could do it. And while you are considering arbitration to resolve your financial disputes, make sure you know the pitfalls it comes with too!
The Rise and Rise of Arbitration
Arbitration isn’t as popular as litigation to resolve disputes, especially in the finance sector. However, things began to change since the dawn of the new millennium, and there’s been an upward growth! And the major reason for it is that it is easy to enforce an arbitral award now than ever before.
We sometimes prefer arbitration to local courts as it offers a more reliable approach. Also, it helps in reducing the dispute risks from becoming public. Another point that rules in its favor is that agreements and protocols are tailored to the need for specific transactions or businesses in a much better way than local courts. Arbitration is popular mainly because it is possible to customize its operations to suit certain firms or transactions.
This is a recognizable trend that shows no signs of reversing. However, one cannot be sure about its potential for future growth. But we can say that it would depend on the financial arbitrators. We say so because more people would opt for arbitration if the arbitrators offer better conflict resolution than litigation. And meeting all the financial industry’s requirements as an effective method of resolving disputes will help it continue to thrive as an ADR.
Offering perfect solutions
Arbitration is the perfect option if you wish to resolve a dispute about one specific financial transaction. To make the process of arbitration a huge success, you need to make the right choices. And by that, we mean covering both arbitration agreements and arbitration procedures. Consider where the arbitration would occur, the local law on arbitration, the possibility of legal support, and interim relief to avoid asset dissipation, etc.
Selecting the right arbitrators is important. And the freedom to pick your arbitrator is the primary advantage it has over litigation. Banking institutions must choose the right arbitral appointments. The arbitrator should qualify in the governing law of the transaction. Besides that, the arbitrator should also be a finance expert and understand the dispute well enough to resolve it!
The process must include procedures to cater to a single resolution procedure. And it should apply to other related contracts, especially when it comes to financing cases.
The limiting factor
While arbitration is widely popular in the financial sector, you cannot always use it. We say so because of the limitations it has. In some instances, arbitration is not possible. For instance, in criminal matters or where the disputing parties did not sign the dotted line for a contract. Summary judgments, in some cases, may be harder to achieve in arbitration.
Certain finance-related initiatives
The finance sector is gradually adapting to arbitration. And in an attempt to do so, they are creating special initiatives and protocols for the sector. This is to ensure a speedy dispute resolution. A few of them include arbitration by FINRA and P.R.I.M.E. Finance, amongst others.
However, most of these initiatives are patchy. That’s because the users need to classify provisions under mainstream arbitral rules and regulations as appropriate for the sector. For example, if you take the 2013 Arbitration Guide, ISDA, a range of model arbitration clauses can cater to the ISDA Master Agreement. Those clauses can contemplate arbitration and put it under the mainstream arbitral rules.
Litigation has usually been the forum of choice for resolving disputes in the case of international finance too. However, globalization and the increasing involvement of parties from emerging markets contribute to international arbitration’s popularity. So, it is no wonder that it is increasing in popularity for resolving major finance disputes.
In some markets across Europe and North America, arbitration as a dispute resolution mechanism is the new norm. So, banks and financial institutions need to have the right personnel to represent them in an arbitration suit. Besides Europe and North America, Asian countries see a boom in this dispute’s popularity redressal mechanism. So, we can say for sure that the popularity of arbitration in the financial sector will continue to grow!