FINRA contests arbitration study findings

A survey finding that arbitration customers do not believe the process is fair was “inconsistent,” the Financial Industry Regulatory Authority Inc. of Washington said in response to a story published yesterday on InvestementNews.com (InvestmentNews, Feb. 6. The findings of the survey, “ Perceptions of Fairness of Securities Arbitration: An Empirical Study,” by Cornell University’s Survey Research Institute for the Securities Industry Conference on Arbitration, are “mixed,” FINRA said in a statement sent to InvestmentNews. FINRA operates the securities industry’s arbitration system, and mandatory arbitration has been under attack by state securities regulators and some members of Congress. “We are troubled that the survey participants rated positively several objective standards – such as arbitrator competence, arbitrator understanding of the issues and legal arguments, the efficiency of the process and the arbitrators’ willingness to listen – while at the same time evaluating the process negatively from the subjective standpoint of fairness,” the statement said. There is a “clear disconnect” in the report’s findings that many of the same people who cited the thoroughness and openness of the arbitration process and praised the competence of arbitrators “also questioned their impartiality,” FINRA said. Further, about 40% of the respondents held negative views about the arbitration process before they filed their case, FINRA said. That indicates “that because of other factors, such as having lost money and then needing to initiate an arbitration to recover their losses, investors might be predisposed to have negative perceptions of our forum.” The Securities Industry and Financial Markets Association of Washington and New York also criticized the study yesterday when it was released. State securities regulators cited the study in immediately calling for the Securities and Exchange Commission and FINRA to change the arbitration system so that industry members no longer sit on arbitration panels.