FINRA Seeks to Limit Definition of Public Arbitrator

According to Investment News and The Wall Street Journal, sources in the know say that the Financial Industry Regulatory Authority wants to limit how many brokerage industry insiders can act as arbitrators in investor disputes with broker-dealers and brokers. The amendment would keep anyone affiliated with the securities industry, including lawyers and ex-brokers, from representing themselves in the role of public arbitrator. FINRA’s board of directors will decide whether to approve a proposed rule changes on this matter at a meeting this week.

Under the FINRA arbitration system, there are two arbitarator categories: nonpublic and public. Public arbitrators usually don’t have a current insider industry connection with the securities industry. Meantime, arbitrators that are nonpublic can have current ties, even working as a banker or a broker or securities fraud lawyer.

Usually, there are three arbitrators on a panel presiding over an investor-broker dispute. The panel members are selected from a list of arbitrators. Respondents and claimants go through this list to eliminate those they don’t want on the panel.

Currently, the SRO lets industry veterans that haven’t been associated with a broker-dealer in at least five years (and didn’t spend at least 20 decades in the financial services sector) add themselves to the list of public arbitrators. Accountants, lawyers, and others that previously represented brokerage firms but haven’t made $50,000 in yearly revenue from the companies in the last two years were able to do the same. If the proposal passes, however, all these individuals, as would lawyers representing investors in securities lawsuits, would have to list themselves as “nonpublic.”

FINRA reportedly hopes this revised and delineated designation would make panels more neutral. There have been worries that arbitrators with industry connections might find it hard to be impartial.

Our FINRA arbitration law firm represents investors with securities disputes that they wish to resolve before the SRO. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Finra to Limit Use of Arbitrators with Industry Ties, Wall Street Journal, February 11, 2014

Finra moves to tighten public arbitrator definition, Investment News, February 11, 2014

Arbitration and Mediation, FINRA

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FINRA Issues Investor Alert on IRA Rollovers, Stockbroker Fraud Blog, January 31, 2014