In the wake of two high-profile cases in which awards were overturned because of issues with the arbitrators on those cases, Wall Street's self-regulator has put in place steps intended to better vet its more than 6,300 arbitrators.
The
Financial Industry Regulatory Authority Inc. now routinely performs an Internet search on the background of arbitrators when they are assigned to a case. The search is intended to flag material that suggest an arbitrator may be biased or unqualified to sit on the case.
If Finra finds material it deems necessary to disclose it will require the arbitrator to make that disclosure.
“If the arbitrator elects not disclose, we remove the arbitrator from the case the roster,” Linda Fienberg, head of dispute resolution at Finra told an audience on Thursday at an event at the Practicing Law Institute in New York.
In addition, Finra is using arbitrators'
Social Security numbers to verify their identity and qualifications. Arbitrators are also now required to update their disclosure statements annually and attorneys are required to show they are in good standing with a state bar association, Ms. Fienberg said.
That procedure comes as Finra last fall removed an arbitrator who allegedly
lied about being an attorneyand served on Finra panels for more than a decade.
Another case was dismissed after the claimant discovered that one of the arbitrators was indicted.
The new measures are not intended to replace due diligence by claimants and respondents.
“I tell clients and people at our firm that its malpractice if you don't spend a lot of time checking out the background of the arbitrators,” said Brian Amery, managing partner at Bressler, Amery & Ross P.C. “We found unfortunately a lot of them aren't as forthcoming as they should be about what their background is.”
Improving disclosure of pertinent information by arbitrators has been an important issue within Finra, said Ms. Fienberg.
“The hottest topic this year -- or at least one of them -- revolves around arbitrator disclosure,” she told the audience. “We are spending huge amounts of staff time and finances in effort to do everything we can to make sure arbitrators and mediators are giving full disclosure of all material info.”
Last year, Finra completed background checks on all its arbitrators. It also updated its roster of available arbitrators and asked for additional disclosures where necessary.
Ms. Fienberg said that very few, if any, arbitrators had been removed as a result of the review.
