The Financial Industry Regulatory Authority is proposing revisions to the process of choosing arbitrators for customer and industry disputes, AdvisorHub reports.
FINRA issued a notice that it is filing with the Securities and Exchange Commission a proposal to amend the Code of Arbitration Procedures to make changes to certain provisions relating to arbitrator list selection.
The plan pertains to cases where the disputing parties’ first attempt at ranking and selecting arbitrators from a prospective list fails to identify a sufficient number of available panelists.
FINRA uses a list selection algorithm that generates, on a random basis, lists of arbitrators from FINRA’s rosters of arbitrators for the selected hearing location for each proceeding. The parties will select their panel through a process of striking and ranking the arbitrators on lists generated by the list selection algorithm.
Opposing parties are required to accept substitutions generated by the random selection algorithm. But FINRA states that the “extended list appointment” process has “proved unpopular as parties may only challenge these arbitrators for cause, which limits the parties’ role in arbitrator selection.”.
The authority added that in some cases, the lists fall short because the sides did not agree on enough combined arbitrators or a potential panelist backs out or becomes unwilling to serve.
Under the new proposal, FINRA said the parties would be able to select arbitrators from an entirely new list, which will help with “enhancing party input over panel composition.”
The changes codify an honorarium of $300 per every four hours that would go to substitute arbitrators to compensate them for the time they would spend reviewing case records and audio recordings of any hearings in preparation for joining an existing panel.
Michael Bixby, president of the plaintiff lawyer trade group Public Investors Advocate Bar Association, told AdvisorHub he expects the proposal to be welcomed by both investor representatives and industry advocates.
“It’s a pretty subtle change,” Bixby said. “In a sea of things that I think are extremely problematic that FINRA has done, this is actually a positive change.”
In 2024, FINRA changed its rules on the selection of arbitrators for resolving disputes after an independent review by a law firm called for greater transparency and consistency in the process. One change to the process was that a list selection algorithm randomly generates the lists of arbitrators from the roster of arbitrators for the selected hearing location for each proceeding, and excludes arbitrators from the lists based upon current conflicts of interest identified within the list selection algorithm. There are three rosters of arbitrators: public arbitrators, non-public arbitrators and arbitrators who are eligible to serve as chairperson of a panel.
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