Charles Schwab & Co. is in the midst of a regulatory struggle with the Financial Industry Regulatory Authority that threatens to change how the firm and other retail brokers do business with its clients.

First, let's take a step back. FINRA filed a complaint against Charles Schwab in February 2012 charging the firm with violating its rules by requiring customers to waive their rights to bring class actions against the firm.

According to FINRA's complaint, Schwab amended its retail customer account agreement in October 2011 to include a provision requiring customers to waive their rights to bring or participate in class actions against the firm. Schwab sent the amended agreements to nearly seven million customers.

Schwab's agreement also included a provision requiring customers to agree that arbitrators in arbitration proceedings would not have the authority to consolidate more than one party's claims. FINRA's complaint charges that both provisions violate rules concerning language or conditions that firms may place in customer agreements.

Last month, a FINRA hearing panel dismissed two of three causes in the complaint against Charles Schwab. The panel concluded that while the amended language used in Schwab's customer agreements to prohibit participation in judicial class actions does violate FINRA rules, FINRA could not enforce those rules because they are in conflict with the Federal Arbitration Act.

In the third cause of action, the panel found that Schwab violated FINRA rules by attempting to limit the powers of FINRA arbitrators to consolidate individual claims in arbitration. Schwab was ordered to remove the language from its customer agreements and pay a fine of $500,000.

End of story?

Not quite. FINRA said on Feb. 26 it will appeal the hearing panel's ruling in favor of Charles Schwab's customer requirements.

"We filed an appeal; bear in mind that the sanctions are stayed pending the result of the appeal," FINRA spokeswoman Michelle Ong told Money Management Executive.

"We look forward to the process winding its way to a conclusion,'' said Schwab spokesman Greg Gable.

Wherever it ends up, retail investors are likely to be the affected parties who come out ahead.