Due Diligence

FINRA To Propose All Public Arbitrators


FINRA, the brokerage industry self-regulator, plans to file a rule proposal in October that would allow investors filing arbitration claims to choose panels composed of only public arbitrators, the regulator announced Tuesday. Brokers or advisors filing arbitration claims against their firms would not have this option, however.

Today, most arbitration cases are heard by a 3-person panel that includes one person who is affiliated with the securities industry and two who are not. Critics have said this makes the panels biased in favor of the industry.

Industry insiders say the move is an attempt to head off any action by the SEC to make arbitration in securities industry disputes non-mandatory. Under the Dodd-Frank legislation, the SEC was given the authority to make such a change, which could open securities firms up to much higher litigation costs.

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