FINRA (Financial Industry Regulatory Authority) is a self-regulating organization that calls itself the investment industry watchdog. It has also been given the authority by the SEC (Securities and Exchange Commission) to police the activities of Wall Street stock brokers and investment firms.
If an investor has a dispute with his or her stockbroker or brokerage firm, in most cases he or she will be legally bound to resolve that dispute by way of FINRA arbitration proceedings as opposed to litigating the claim in state or federal civil court proceedings.
Classification of Public and Private FINRA Arbitrators
Rules governing the FINRA arbitration process -- and the arbitrators who serve as judges over these proceedings -- can have dramatic affects on the fairness of these proceedings. For this reason, a new rule change to FINRA's process of classifying arbitrator judges, which the regulator is currently proposing, may be of interest to the investing public.
FINRA is trying to change the way it currently classifies arbitrator judges into two categories. One classification of arbitrators is "industry," which means that they have worked in the investment industry. The other is "public," which means they were not employed in the industry.
FINRA plans to submit a request to the SEC to tighten how it classifies these arbitrators, so that any arbitrator who has ever worked in the investment industry (no matter how long) will be classified as an "industry" arbitrator. As it stands right now, an arbitrator can be classified as "public" if the arbitrator has not been employed in the investment industry within the last five years.
Changes Could Improve Fairness of Securities Arbitration
Because arbitration claimants can already request an all public arbitration panel, FINRA's broadening of the way it classifies industry arbitrators means that claimants will have the ability to disqualify arbitrators with a small amount of industry experience. Some say that this will make the process fairer for fraud victims seeking an unbiased arbitrator to decide their cases. Opponents say that this tightening of rules will reduce the already limited pool of available arbitrator judges.
So far, the board of directors at FINRA has voted to approve this new change to the code of arbitration procedure. However, it remains to be seen if the SEC will approve the reform. Further, it will remain to be seen if these new rule modifications will help to improve the fairness of securities arbitration -- which is frequently called into question by investor rights advocates.
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