Rise in Financial Institution Arbitration

  • 23 March
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From several years, the typical course of action for resolving disputes in the financial industry was going to court. However, a rising number of financial institutions are choosing arbitration in recent years. Arbitration has become a very popular means of resolving financial disputes in Dubai, a city well-known for its financial sector. This move helps Dubai's financial institutions and is a part of a broader trend towards alternate dispute resolution methods. Specific rules and guidelines are set up to encourage increasing arbitration in the finance sector. These include rules like FINRA-administered arbitration and P.R.I.M.E. Finance, among others.

Aspects Fueling the Growth of Arbitration
  • Confidentiality: Arbitration proceedings are typically confidential, which can be advantageous for financial institutions seeking to avoid negative publicity associated with public court battles.
  • Neutrality: Arbitration allows parties to select neutral arbitrators with expertise in financial matters, potentially leading to fairer and more efficient outcomes compared to judge-led litigation.
  • Faster Resolution: Arbitration proceedings are often faster than traditional litigation, leading to quicker resolution of disputes and reduced costs associated with prolonged legal battles.
  • Enforceability: Arbitration awards are generally enforceable across various jurisdictions, making them a viable option for cross-border disputes involving financial institutions.
Justification for Rise in Financial Institution Arbitration

DIAC aims to be a top destination for settling disputes globally, as Jehad Abdulrazzaq Kazim, DIAC’s executive director, mentioned to AGBI. Dubai came in at number ten in the world for international arbitration in a 2021 poll conducted by Queen Mary University of London and the legal firm White & Case. The top five cities were London, Singapore, Hong Kong, Paris, and Geneva.

Between 2018 and 2022, the Dubai International Financial Centre (DIFC) Arbitration Institute (DAI) saw a 30% rise in cases, most of which included financial firms. Notable disputes include a shareholder disagreement in a listed business on the Dubai Financial Market, a dispute between a financial institution and a corporate borrower over a defaulted loan, and a dispute between a regional bank and a foreign investment firm over violation of contract.

Similarly, the London Court of International Arbitration (LCIA) noted more cases from the Middle East, including Dubai, particularly in banking and finance. News and industry reports confirm this trend, highlighting arbitration's increasing popularity for financial conflicts in Dubai.

Navigating the New Landscape

Financial institutions need to be prepared for changes in the methods used to settle disputes. One way is by creating strong arbitration clauses in contracts. These clauses should clearly state which disputes will be settled through arbitration, making sure they're legally binding. Also, it's important for financial institutions to know the laws and rules about arbitration to ensure everything is done correctly.

Despite its benefits, international arbitration also has drawbacks. It can be as slow and costly as litigation, especially in some countries. Plus, it doesn't allow additional parties to join, making it more expensive and time-consuming. The arbitration awards lack a sense of finality and are not based on a legally enforceable precedent.

In spite its flaws, international arbitration is increasingly popular. Although some participants in finance are hesitant to use arbitration, it's still true that financial institutions can gain a lot by using it more often.

Alqada believes in supporting clients on each step during the arbitration process. There are following list of Arbitration's articels you can know more about Arbitration law by visiting these links.

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