Finra creates task force to determine arbitration improvements

Group to tackle transparency, impartiality and efficiency of the process

Jul 17, 2014 @ 11:45 am

By Mark Schoeff Jr.

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Over the last several years, the Financial Industry Regulatory Authority Inc. has undertaken initiatives to reform the investor dispute resolution system it administers. Now it's looking for outside input.

On Thursday,Finra announced the formation of a 13-member arbitration task force. The organization said the panel would seek ways to improve the transparency, impartiality and efficiency of the process.

Nearly every brokerage customer contract includes a mandatory arbitration clause. Investor claims against financial advisers, as well as those by advisers against brokerages, are adjudicated by Finra arbitrators.

The system has been criticized for favoring Wall Street and for too easily allowing brokers to clear their records of disciplinary proceedings.

Over the last few years, Finra has sought to tighten arbitration rules to encourage all-public members on the three-person arbitration panels, strengthen arbitrator background checks and limit the number of arbitrators who have an industry background.

Richard Ketchum, Finra chairman and chief executive, said the task force will point the way toward further reforms.

“It's time to take a fresh look at arbitration,” he said. “What we think is important is to get an independent view from a diverse group.”

The panel consists of three investor attorneys, an investor advocate, a state securities regulator, four financial-firm officials and an industry attorney, among others.

“They've done a good job of putting together a group that represents the range of perspectives,” said Barbara Roper, director of investor protection at the Consumer Federation of America and a member of the task force.

Ms. Roper also serves on the Finra investor issues committee, which was established last year.

“Rick Ketchum in particular has a good record in terms of his willingness to reach out to investors and listen to their concerns,” Ms. Roper said.

The task force will develop its own agenda. One area it might consider is changing the way Finra handles large cases, said Linda Feinberg, president of Finra Dispute Resolution.

“They may require and benefit from a different set of rules,” she said.

The number of new arbitration cases filed this year through June totaled 2,042, up 8% from the same time last year, according to Finra statistics. The number of cases closed through June — 1,923 — has fallen 18% from June 2013. Customers have been awarded damages in 96 cases, or 44%, so far this year.

Finra uses a total of 6,398 arbitrators. Of those, 3,562 are public and 2,836 are non-public, or have a tie to the securities industry.

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