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FINRA Proposes to Tighten Definition of 'Public Arbitrator'

Tuesday, February 18, 2014
By Phyllis Diamond

Feb. 13 -- The Financial Industry Regulatory Authority Feb. 13 proposed amendments to the organization's arbitration code that would tighten the definition of “public” arbitrator for FINRA arbitration purposes.

In a release, FINRA said the proposed rule changes would provide that a person who worked in the financial industry “for any duration” during his or her career would always be classified as a non-public arbitrators.

It added that “professionals who represent investors or the financial industry as a significant part of their business would also be classified as non-public, but could become public arbitrators after a cooling off period.”

In addition, FINRA said, the proposed amendments would “reorganize the definitions” to make it easier to determine the correct arbitrator classification. The proposed rule change, approved by FINRA's Board of Governors, will be submitted to the Securities and Exchange Commission for approval.

Comments
In an e-mail, Kevin Carroll, managing director and associate general counsel of the Securities Industry and Financial Markets Association, commented that arbitrators with industry experience benefit both parties to a dispute by ensuring that decisions are made by persons knowledgeable in the field.

Public arbitrators also educate other panelists about financial products and services, and industry customs and practices, he noted. “And, they have a strong interest in deciding cases fairly in order to protect the reputation of the industry and the integrity of the arbitration forum.''

Carroll said he hasn't seen the specific proposal. However, he said he hopes it “appropriately considers and weighs these valuable benefits of industry experience, which ultimately contribute to investor protection.''

Meanwhile, a spokesman for the North American Securities Administrators Association called the proposal “a step in the right direction toward improving the arbitration system.'' However, he said, “it does not change our opposition to mandatory arbitration.''

In other action at its Feb. 13 meeting, the FINRA board authorized the filing of rule proposals governing the settlement of customer disputes, temporary cease and desist orders, and links to BrokerCheck on the website of a member firm.

To contact the editor responsible for this story: Susan Jenkins at sjenkins@bna.com

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