More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
The Securities and Exchange Commission (SEC) approved Tuesday the Financial Industry Regulatory Authority’s (FINRA) proposed rule change to give investors in all-FINRA arbitrations access to an all-public panel.
As FINRA explains in a release, historically, in cases with three arbitrators, the panels have been comprised of two public arbitrators and one arbitrator with a nexus to the securities industry. The amended rules, FINRA said, “will apply to all customer cases in which a list of potential arbitrators has not yet been sent to the parties.”
Richard Ketchum (left), FINRA’s Chairman and CEO, said in the release that “this change will give investors an additional choice in selecting their arbitrators when they file claims.” FINRA, he continued, “believes that giving investors the ability to have an all-public panel will increase public confidence in the fairness of our dispute resolution process.”
David Massey, president of the North American Securities Administrators Association (NASAA), told AdvisorOne that “state securities regulators have long advocated providing investors greater choice in FINRA arbitrations. Providing investors with the choice of having an all-public panel of arbitrators is a positive development toward increasing the fairness of the securities arbitration process.” Another step in enhancing investor confidence, Massey continued, “would be to allow investors to choose between arbitration and litigation in an independent judicial forum.”
But Brian Rubin, a partner at Sutherland, a law firm in Washington, says that an all-public panel “can potentially be a problem if the public panels don’t have the sophistication to understand issues in the case, such as the products, the sales process or supervision.” Firms, he says, “will have to take into account the panels differently now when they are deciding whether to settle or litigate.”
FINRA sought the SEC’s approval for the rule change last October after results of its 27-month Public Arbitrator Pilot Program, which included 14 firms, revealed that investors presented with this option chose the new method of arbitrator selection nearly 60% of the time. The pilot program found that “investors regularly accepted a non-public arbitrator, but the ability to choose the circumstances improved their perception of the process,” FINRA said. “There was strong support from investor and consumer groups for giving arbitration customers the right to decide whether their panel should include a non-public member,” Ketchum said.