New changes to the eligibility criteria for Financial Industry Regulator Authority arbitrators are drawing opposition from lawyers who say the revisions are too favorable to the brokerage industry, Financial Advisor reports.
The Public Investors Advocate Bar Association (PIABA), comprised of investor attorneys, released a statement criticizing the FINRA requirements that took effect on May 24. Under the new rules, FINRA arbitrators must now have a four-year degree, versus the previous requirement of at least two years of college-level credits as well as at least five years of full-time paid professional work experience that requires advanced training and education. Previously the role called for five years of “paid business and/or professional experience.
PIABA’s statement condemned FINRA “for implementing sweeping changes to new arbitrator qualifications without consulting investor advocates or providing an opportunity for public comment,” and said the criteria would make it more difficult for investors to have a “jury of their peers” during the arbitration process.
Adam Gana, president of PIABA and managing partner at Gana Weinstein LLP, said the bar association was not notified of the changes until days after they went into effect, and added that the decision “to overhaul arbitrator qualifications in the dead of night—without transparency, notice, or stakeholder input—is unacceptable,”
FINRA maintains a roster of more than 8,100 arbitrators to mediate securities-related disputes between brokers and investors, and the authority said it is seeking to expand the depth of its arbitrator roster by recruiting candidates from a variety of backgrounds and areas of professional expertise.
FINRA spokeswoman Rita De Ramos said that the regulator is “constantly looking for ways to enhance the arbitration forum, and that includes the quality of the arbitrators. This change will help address the feedback that we have received that the prior standards discouraged attorneys and other professionals from applying to the roster.”
She said FINRA has also discussed raising the minimum employment and educational standards for arbitrators with members of the National Arbitration and Mediation Committee, and had discussed potential changes several times in recent years. At least seven of NAMC’s committee are PIABA members. “Dispute Resolution Services has carefully considered input from all committee members on this issue,” she added.
In its statement, PIABA listed the following reasons for its opposition to the new arbitrator requirements:
-No Notice or Consultation: FINRA made these changes unilaterally, without consulting PIABA or any investor advocacy organizations.
-Reduced Arbitrator Diversity: The changes drastically limit who can serve as a public arbitrator, excluding experienced small business owners and other qualified professionals. PIABA contends that FINRA’s -industry-leaning unilateral changes will make the arbitrator pool far less like any typical jury and likely result in increased favoritism for the securities industry.
-Shrinking an Already Strained Pool: With the forum already facing a shortage of public arbitrators, this move further depletes available resources, delaying justice for harmed investors.
-Industry Appeasement: The timing and nature of the rule change suggest FINRA may be responding to recent investor victories that displeased industry members.
No Opportunity for Public Input: PIABA calls on FINRA to immediately open a public comment period and reconsider the rule changes and consider stakeholder feedback.
“These new standards arbitrarily disqualify people with decades of relevant life and business experience who could offer fair, real-world perspectives to the arbitration process,” Gana said. “If FINRA is serious about investor protection and arbitration fairness, it must reverse course and invite public input immediately.”
The PIABA added that the arbitrator qualification requirements may exacerbate existing problems with the fairness of arbitrations, noting that the financial industry has won 70% of customer arbitration cases and that 30% of FINRA’s arbitration awards won by investors go unpaid.
At Lewitas Hyman, our attorneys have handled hundreds of arbitrations before FINRA, , the Chicago Board Options Exchange, the Chicago Board of Trade, JAMS, the American Arbitration Association and other self-regulatory organizations nationwide. We have also appeared in courts throughout the United States in various types of securities-related matters. For more information about our arbitration and litigation services, please contact us at (888) 655-6002 or through our online contact form.