June 30 Wall Street's industry-funded watchdog has sent a plan to the U.S. Securities and Exchange Commission that would restrict industry veterans from acting as arbitrators in many disputes between investors and their brokerages, according to a filing.
The Financial Industry Regulatory Authority (FINRA) proposal with the Securities and Exchange Commission would tighten limits on who is eligible to serve as so-called "public arbitrators," a class of securities arbitrators outside the industry.
Under the plan, arbitrators who have worked in the securities industry, even for brief periods, would no longer be eligible to serve as public arbitrators, according to the proposal.
FINRA wants to change its existing definition of who is eligible to become a public arbitrator because of concerns among lawyers for investors about the neutrality of public arbitrators, the regulator wrote in the plan. Lawyers for investors have long argued that arbitrators who have any industry ties at all could show bias in favor of the industry.
FINRA proposal is available here: 1.usa.gov/1lscWWO
The SEC, which oversees FINRA, must review and approve changes to its rules. The agency is collecting letters about the public's view of the plan. (Reporting by Suzanne Barlyn; Editing by David Gregorio)