FINRA Arbitration Process Due for Overhaul?

Performance Chart

FINRA's troubled dispute resolution forum could come in for an overhaul.

That's a possibility now that the regulator's arbitration task force has issued a new report containing 51 recommendations to reform arbitration.

A key recommendation is aimed at resolving advisor concerns regarding the process to purge their public records of disciplinary marks.

The task force recommends that FINRA form a special panel of arbitrators who are experts in handling these expungement cases — a move some investor advocates say could prove effective.

Other task force recommendations include:

  • An automatic mediation process, subject to an opt-out provision. This would encourage disputes to go through mediation, which is generally less expensive than arbitration. But, either side could opt out of mediation and proceed to arbitration if they so chose.
  • Publicizing the content of arbitration cases with explanations to improve the transparency of the forum. However, either party to a dispute could notify FINRA that it doesn’t want the contents of their dispute revealed.
  • An increase in arbitrator honoraria from $300 to $500 per session, and from $600 to $1,000 a day.

"I'm hopeful," says Hugh Berkson, president of the Public Investors Arbitration Bar Association, a group composed largely of lawyers who represent investors in arbitration cases.

But he adds the effectiveness of any of these reforms remains to be seen.

For example, higher fees for arbitrators could result in better decisions. "If you have lousy arbitrators, nobody gets a good result," Berkson says.

However, more money could enlarge the ranks of arbitrators who preside over cases, not as a sideline to other careers, but as a main line of work.

That, in turn, could produce arbitrators unwilling to award sufficient sums to clients to ensure that financial services firms will be more likely to select them to serve on future cases, Berkson thinks.

In convening the task force in July 2014, FINRA asked the members to suggest strategies to enhance the transparency, impartiality and efficiency of FINRA's arbitration for all participants, according to a release.


In all, the task force and its subcommittees met a total of 57 times over a period of 14 months. It also set up an email inbox to solicit comments. In addition, the task force solicited written comments from more than 30 interested organizations and individuals.

They have since publicly released their 70-page report.

A FINRA committee is scheduled to meet in the middle of next month discuss the report and strategize implementation, Rick Berry, executive vice president of FINRA Dispute Resolution said in an interview.

"I think you will see a very expeditious review process," Berry says. The committee has "a triage meeting set up for January and are looking at which proposals can move forward quickly, which will require further study and which will go onto the back burner."

Barbara Black, a retired professor and director of the Corporate Law Center at the University of Cincinnati College of Law served as the task force's chair. PIABA members also served on the 13-member task force.

Other members include investor attorney Philip Aidikoff; Joseph Borg, director of the Alabama Securities Commission; arbitrator and mediator Philip Cottone; arbitrator John Cullem; attorney Sandra Grannum; investor attorney Mark Maddox; Kevin Miller, chief compliance officer with Securities America; investor attorney Joseph Peiffer; Barbara Roper, director of investor protection at the Consumer Federation of America; Lisa Roth, CEO of Keystone Capital Corporation; Edward Turan, managing director of Citigroup Global Markets; and Harry Walters, managing director of Morgan Stanley Wealth Management.

This article was originally published at

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

© 2016 SourceMedia, Inc. All rights reserved. Content originally published in On Wall Street. No further distribution, reuse, or republication permitted without the written consent of SourceMedia Inc. For more from On Wall Street, go to:

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.