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Regulation and Compliance > Federal Regulation > FINRA

New FINRA Arbitrator Selection Rules Start March 4

By Melanie Waddell

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The Financial Industry Regulatory Authority has amended its arbitrator selection process in an effort to enhance the transparency of the arbitration forum administered by FINRA Dispute Resolution Services.

FINRA has amended its Codes of Arbitration Procedure to:

  • change the arbitrator list selection process
  • clarify and make technical changes to requirements in the codes for holding prehearing conferences and hearing sessions, initiating and responding to claims, motion practice, claim and case dismissals, and providing a hearing record.

The amendments are effective for arbitration cases filed on or after March 4.

The rule change, filed with the Securities and Exchange Commissionon Dec. 23, is in response to recommendations made last June by Lowenstein Sandler, which conducted an independent review of FINRA’s arbitrator seclection process after an arbitration decision in favor of Wells Fargo was thrown out in court.

The judge found that Wells Fargo and its counsel had manipulated the arbitrator selection process through an agreement with FINRA.

The Lowenstein Sandler review found no evidence of an improper agreement but recommended that FINRA increase transparency in the arbitrator selection process.

FINRA’s new amendments include requiring a list selection algorithm that will randomly generate the lists of arbitrators from the DRS roster for the selected hearing location for each proceeding, and exclude arbitrators from the lists based upon current conflicts of interest identified within the algorithm.

The amendments reflect customers’ suggestions that they have the option to conduct a special proceeding by video conference.

“Specifically, the amendments provide that a special proceeding will be held by video conference, unless the customer requests at least 60 days before the first scheduled hearing that it be held by telephone, or the parties agree to another type of hearing session,” according to FINRA.

Melanie Waddell

@Think_MelanieW

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