Finra Plans New Limits on Arbitrators With Wall Street Ties
Wall Street’s self-regulator proposed barring former stock brokers, securities attorneys and others who worked in the financial industry from serving on some panels arbitrating customer disputes.
Public arbitration panels could no longer include people who once worked for securities firms under a proposal released today by the Financial Industry Regulatory Authority. Investors who accuse brokers of misconduct typically must pursue claims with an arbitration panel under an agreement they are required to sign when opening an account.
The change was approved in a meeting in New York of Finra’s Board of Governors after the organization heard criticism that arbitrators with financial-industry ties may be biased in favor of brokers. The rule change is subject to approval by the Securities and Exchange Commission after a public comment period.
“Finra has heard us talk about this over the years and it just makes it more transparent and more clear that public means public,” said David P. Meyer, a Columbus, Ohio-based attorney who represents investors in cases against brokers.
Finra writes rules for brokerages and ensures that its member firms sell suitable investments to their clients. Under its existing rules, a public arbitrator can be someone who worked for a brokerage more than five years ago. Accountants and lawyers who recently performed limited work for a brokerage firm also may qualify as public arbitrators under current rules.
Investors are also offered a choice under current Finra rules of having a claim heard by what it calls a non-public arbitrator, who worked in the industry more recently. In 2013, customers chose the all-public panel in two-thirds of all cases, according to Finra statistics.
The self-regulatory organization also proposed a new rule to restrict brokerages from conditioning settlements on an agreement that the grievance be expunged from Finra’s publicly available broker-complaint database.
“Finra feels expungement of dispute information shouldn’t be bargained for through settlement negotiations or otherwise,” Chief Executive Officer Richard Ketchum said in a video statement posted on Finra’s website.
To contact the reporter on this story: Dave Michaels in Washington at firstname.lastname@example.org