The FINRA practice of requiring an "industry" arbitrator on all of its arbitration panels has finally come to an end. The requirement once upon a time had some merit, back in the day when arbitrations were simple, handled in a few afternoons, and were primarily simple disputes. Over the decades that I have been representing parties in securities arbitrations, the landscape has changed dramatically. While the concept was to have someone on a panel who understood the workings of the securities industry, FINRA altered the definition of industry arbitrator to the extent that so many individuals were included that the entire concept was lost in rule changes.
It was also an issue to have an "experienced" industry arbitrator on a panel. While the thought is that the industry arbitrator could help the other arbitrators, that is simply not the case, and the risk that the panel will make decisions based on information from the industry arbitrator that was not evidence in the case has become far too great.
The practice is finally over. Yesterday FINRA announced that the SEC has approved its proposed rule change to provide customers in all FINRA arbitrations the option of having an all public panel. The amended rules will apply to all customer cases in which a list of potential arbitrators has not yet been sent to the parties.
Given the fact that 40% of all participants in the "all public" pilot program still chose an industry arbitrator, I do not expect to see any significant changes in the composition of panels. As experienced practitioners know, the best arbitrator is a fair and reasonable one, and that is very often an "industry" arbitrator. What will change is the complaining about the selection process. While the complaint that the "industry" arbitrator will side with the industry is insulting to the professionalism of our arbitrators, the complaint did have some traction with the public and the press and it was time for the requirement to go. More...
It was also an issue to have an "experienced" industry arbitrator on a panel. While the thought is that the industry arbitrator could help the other arbitrators, that is simply not the case, and the risk that the panel will make decisions based on information from the industry arbitrator that was not evidence in the case has become far too great.
The practice is finally over. Yesterday FINRA announced that the SEC has approved its proposed rule change to provide customers in all FINRA arbitrations the option of having an all public panel. The amended rules will apply to all customer cases in which a list of potential arbitrators has not yet been sent to the parties.
Given the fact that 40% of all participants in the "all public" pilot program still chose an industry arbitrator, I do not expect to see any significant changes in the composition of panels. As experienced practitioners know, the best arbitrator is a fair and reasonable one, and that is very often an "industry" arbitrator. What will change is the complaining about the selection process. While the complaint that the "industry" arbitrator will side with the industry is insulting to the professionalism of our arbitrators, the complaint did have some traction with the public and the press and it was time for the requirement to go. More...
