Wall Street's self-regulator is asking for input from a select
group of public advocates, securities lawyers and industry
executives on its much-criticized system for arbitrating disputes
between customers and brokers.
Complaints about the Financial Industry Regulatory Authority's
dispute resolution forum range from charges of a pro-industry bias
to a lack of transparency. Some critics also say it fails to
adequately check the backgrounds of arbitrators and is too quick to
wipe black marks from brokers' public records.
Finra announced on Thursday the formation of a task force of 13
lawyers, academics, and industry and consumer representatives to
review the system. Arbitration is typically mandatory in cases
where customers feel a broker is to blame for an investment
loss.
"We've made some pretty dramatic changes in the arbitration
process in the last few years" in an effort to improve it, said
Finra's chairman and chief executive Richard Ketchum. "At the same
time, I guess, arbitration remains a controversial thing, with a
lot of criticism coming from both sides."
"A lot of times there has been more heat than light in that
criticism," Mr. Ketchum added. "It's time for us to get a hard,
fresh look at how the process has changed and how it should change
more."
The task force will decide itself what issues to focus on, Finra
said.
"We have a list, but we think it's important for the group to
set the agenda," said Linda Fienberg, head of Finra's dispute
resolution and disciplinary hearing programs.
Barbara Roper, the director of investor protection at the
Consumer Federation of America is a member, as are lawyers from
Citigroup Inc. (C) and Morgan Stanley (MS). Barbara Black, a
professor of corporate law at the University of Cincinnati, is
going to chair the task force.
The group is expected to come together for the first time in
late September or early October, and wrap up with recommendations
of how to better protect investors and their shaken confidence in
capital markets within one year.
Finra has more proposed changes already pending. One would ban a
common tactic used by brokers who want to wipe customer complaints
from their publicly available records, while another would tighten
restrictions on the use of industry insiders as arbitrators.
Write to Matthias Rieker at matthias.rieker@dowjones.com
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