Feb 13 The Financial Industry Regulatory
Authority's board of governors on Thursday approved two measures
that could lead to big changes in its securities arbitration
system, where investors and brokerages must resolve their
The Wall Street industry-funded watchdog approved a proposed
rule banning settlements in customer disputes that require
investors to not oppose erasing details about complaints from
brokers' public records, the regulator said.
FINRA also approved a measure that would make it more
difficult for Wall Street veterans to act as arbitrators in many
legal disputes between investors and their brokerages.
Both measures require approval from the U.S. Securities and
Exchange Commission, which oversees FINRA and changes to its
The two issues have been the subject of longstanding
controversies for FINRA, which runs Wall Street's arbitration
"FINRA is taking the right step," said Barbara Roper,
director of investor protection for the Consumer Federation of
America, a Washington-based advocacy group. "They are
demonstrating that they are sensitive to how these issues are
perceived by the broader public," Roper said.
FINRA's efforts to ban settlement deals between brokerages
and customers that require investors to not oppose erasing, or
"expunging," details about complaints from brokers' public
records stem from concerns by some lawyers and investor
advocates that the practice could undermine the system investors
and the industry use to check the backgrounds of their brokers.
"FINRA feels strongly that expungement of customer dispute
information shouldn't be 'bargained for,' Richard Ketchum,
FINRA's chairman and chief executive, said in a statement
Ketchum made the plan public in January after two senators
pressed for details about FINRA's process for erasing, or
"expunging," details about investors' complaints from brokers'
The board also approved a measure that would prevent people
with any Wall Street experience whatsoever, such as former
brokers or branch managers, from serving as so-called "public
arbitrators," who are supposed to act as outside voices in the
FINRA presently allows people who have been out of the
industry for at least five years, but who may have worked in it
as many as 20 years, to serve as public arbitrators. Investors'
lawyers, however, have complained that the public arbitrators
who once worked on Wall Street may have an industry bias.
Under the new plan, anyone with Wall Street experience must
serve as a "non-public arbitrator." Non-public arbitrators are
required to have industry expertise and typically hear disputes
between industry entities.
The board also approved a measure that would let FINRA seek
input from the industry about a revised plan for brokerages to
include a link on their websites to BrokerCheck, a free online
service through which investors can check out the professional
history of a broker or firm.
FINRA scrapped a previous version of the plan last year
after some brokerage industry groups complained that it would be
difficult or impossible to fit the link on social media sites,
such as Twitter. Under the new measure, firms would not have to
display the link on social media or in emails, FINRA said.
(Reporting by Suzanne Barlyn; Additional reporting by Aman
Shah; Editing by Jonathan Oatis)