FINRA’s New Public Arbitrator Rules Make Little Sense: Compliance Pros

Compliance professionals are questioning the merits of new FINRA rules that prevent people associated with mutual funds and hedge funds from serving as public arbitrators.

The Securities and Exchange Commission recently approved FINRA’s new rules, which become effective on July 1, and respond to concerns raised by “investor representatives” about such persons’ neutrality. In addition, FINRA amended the public arbitrator definition to add a two-year “cooling off” period before FINRA may permit certain individuals to serve as public arbitrators.

Other excluded persons include investment advisors, attorneys who work in the securities industry, and directors and officers of firms in the securities industry.

But Cipperman Compliance Services issued a statement declaring that it “couldn’t disagree more” with the new approach. “Why would FINRA want to exclude professionals that actually know something about the securities industry?” the compliance firm asked. “Is this plaintiff’s argument about perceived neutrality actually supported by any empirical evidence?”