The following is a statement by North American Securities Administrators Association (NASAA) President and North Dakota Securities Commissioner Karen Tyler regarding the Financial Industry Regulatory Authority (FINRA) pilot program to allow certain investors making arbitration claims to choose a panel made up of three public arbitrators instead of the current system, which requires the inclusion of a mandatory industry representative on arbitration panels.
“NASAA has long advocated a series of constructive steps to restore choice, fairness, and balance to the securities arbitration process. The first step toward improving the integrity of the arbitration system must be the removal of the mandatory industry arbitrator coupled with a prohibition on ties to the industry on the part of the public arbitrator. FINRA’s pilot program, while a positive step, does not go far enough toward resolving immediate investor harm. Since the pilot program will include just a fraction of the arbitration cases that will occur during the next two years, only a select few customers will realize the benefit of having a panel where there is no mandatory industry representative, but thousands of others will not have that choice. Investor protection demands that all investors be given that choice immediately.
“A recent study released by the Securities Industry Conference on Arbitration (SICA) found that most investors view the current securities arbitration forum as biased and unfair. Because the arbitration system has evolved into a mandatory condition imposed by the industry, it is imperative that the system of dispute resolution be fair, transparent and free from bias. Even without this pilot, we would hope that FINRA would agree that the immediate removal of the mandatory industry arbitrator is a critical step toward restoring investor confidence in the fairness of the securities arbitration process.”
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