FINRA Approves Wider Public Arbitrator List, Proposes Rule Change, and is Accused by Lawmakers of Not Doing Enough to Protect Investors From Bad Advisers

The Financial Industry Regulatory authority has broadened its list of public arbitrators to preside over cases. The self-regulatory organization will provide dispute participants with the names of 15 public arbitrators, instead of 10, from which to choose. FINRA’s Board also modified its eligibility requirements for who can chair an arbitration panel.

FINRA allows plaintiffs and defendants of arbitration cases to choose three arbitrators.

In other FINRA arbitration news, the SRO is asking the U.S. Securities and Exchange Commission to approve a proposed rule change that would allow monetary awards mandating that parties pay one another damages to be offset. This rule change is for situations in which an arbitration panel awards damages to both the respondent and claimant and one party can’t or doesn’t pay what it owes.

If approved, the rule would allow the party that owes more money to only have to pay the net difference. If arbitrators don’t mean for an award to be offset when both parties owe one another money, they must state so in the award notice.

FINRA said that under the current rules, post-arbitration litigation has resulted with parties asking arbitrators to clarify or modify an award after a case has concluded. The proposed rule would get rid of the need for this type of additional proceedings.

Disputes between customers and broker/ brokerage firms are typically resolved in arbitration as brokerage contracts include mandatory arbitration clauses.

In other FINRA-related news, U.S. Senator Elizabeth Warren (D-Mass) says that the SRO needs to do a better job of protecting investors from both advisers who have a track record of previous misconduct and the firms that hire these individuals despite their shady professional history. In a letter that she and Senator Tom Cotton (R-ARK) wrote to Richard G. Ketchum, FINRA’s CEO and chairman, the two lawmakers said that they believe misconduct continues to happen because advisers are not effectively sanctioned.

They pointed to a recent research paper that said that only about 50% of advisers with a misconduct record were fired and 44% of them were able to find new jobs in the industry not long after. The paper said that one-third of financial advisers are repeat offenders.

Warren and Cotton said that the research paper indicated that certain firms appear to make hiring repeat offenders a habit. They said that these are the same firms that work with elderly customers and clients who don’t have a lot of education. They want Ketchum to get back to them by June 15 with specific steps that the agency intends to take to deal with adviser misconduct, repeat offenders, and the firms that are willing to hire them.

Our securities arbitration law firm represents investors that have lost money because of the negligent or wrongful actions of brokers, financial advisers, and others in the industry. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Sens. Warren, Cotton Accuse Finra Of Weak Enforcement, Financial Adviser, May 12, 2016


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