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In an effort to improve the fairness and transparency of its arbitration system, the U.S. Financial Industry Regulatory Authority Inc. (FINRA) is adopting a series of rule changes.

The amendments, which will apply starting March 4, codify reforms to the arbitrator selection process made after an independent review of FINRA Dispute Resolution Services (DRS).

In 2022, FINRA hired law firm Lowenstein Sandler LLP to review how the service complied with its own rules and procedures for arbitrator selection, following a court ruling that vacated an arbitration award.

In response to the resulting report, FINRA amended its arbitrator selection process, and made other changes intended to clarify requirements.

Among other things, the changes codify the procedure for manually reviewing arbitrator lists that are randomly generated, to ensure that conflicts of interest that aren’t covered by the algorithm are identified and screened out.

The reforms also codify the practice of providing written decisions on challenges to remove an arbitrator, and codify some of the requirements around these kinds of challenges.

Other areas covered in the changes include measures to encourage arbitrator efficiency, provisions to facilitate virtual hearings, and practices for redacting confidential information in arbitration filings.

Previously, FINRA didn’t require filings made under its simplified arbitration rules to redact personal information, but amid growing concerns about identity theft involving investors, it has now extended those requirements to simplified arbitrations.

The revisions to FINRA’s arbitration service come amid calls from consumer and investor advocates for regulators and policymakers to take action against the imposition of mandatory third-party arbitration by firms outside FINRA.

Advocacy groups argued recently that mandatory arbitration clauses in client agreements with registered investment advisors (RIAs) are unfair, aim to discourage investors from pursuing complaints, and may violate the firms’ fiduciary duties to their clients.