The Financial Industry Regulatory Authority said Wednesday that it has taken action on 35 of the 51 recommendations made in the Dispute Resolution Task Force’s final report, and the self-regulator is “diligently responding to the remaining recommendations,” according to FINRA chief Robert Cook.
FINRA released an interim status report in October 2016 and Wednesday’s report sets forth further progress made to date – with 16 recommendations pending. The task force concluded after the final report was submitted.
FINRA says that it has discussed all of the task force recommendations with the National Arbitration and Mediation Committee (NAMC), FINRA’s Standing Board Advisory Committee.
“We are very pleased to report that we have already implemented many of the task force’s recommendations, and we are diligently responding to the remaining recommendations,” said Cook, FINRA’s president and CEO. “Many of the recommendations we are putting in place are meaningful changes that will position the forum to better serve all parties involved. The NAMC and FINRA staff are doing an effective job of comprehensively reviewing and promptly taking action on the recommendations.”
Many of the recommendations, particularly those involving forum transparency, arbitrator recruitment and training, and case administration processes did not require rulemaking and were implemented in 2016, FINRA said.
“It’s progress,” said Joe Borg, director of the Alabama Securities Commission, who was a member of the task force. The recommendations go directly to NAMC, Borg said, “so its a multi-step process. And when a rule is required then it must be approved by the Securities and Exchange Commission.”
FINRA stated that the self-regulator received 945 arbitrator applications in 2016, “far exceeding” its goal to recruit 750 new arbitrators.
FINRA’s latest arbitrator demographic survey, which was conducted by an external consulting firm, showed progress in adding women and African-Americans to the roster. In 2016, 33% of the arbitrators added were women (compared with 26% in 2015) and 14% were African-American (compared with 4% in 2015).
FINRA commenced the rulemaking process on six of the recommendations. Of those, the SEC has already approved two proposals related to the number of public arbitrators on lists and motions to dismiss; there are four proposals in various stages in the rulemaking process, including a proposal addressing the task force recommendation to develop an intermediate form of adjudication for small claims.
“The perception within the legal investor community is that the FINRA [arb] panels are skewed in favor of the industry,” said Charles Field, who co-chairs Sanford Heisler’s Financial Services Litigation practice and is part of a committee of lawyers from the Public Investors Arbitration Bar Association (PIABA), a group of lawyers that represents investors in arbitration against brokers.
“Most investors feel that when they walk into a mandatory arbitration, they are not going to get a fair hearing either because the panel feels they need to assign blame or they are afraid an adverse ruling will cause the industry to blacklist them from further hearings. Anything they can do to correct the perception is certainly welcome.”
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