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(Reuters) - Wall Street's self-regulator will ask the U.S. Securities and Exchange Commission next week to review a plan that would restrict industry veterans from acting as arbitrators in many disputes between investors and their brokerages, an official said on Wednesday.
The change would tighten limits on who is eligible to serve as public arbitrators, said Linda Fienberg, head of the Financial Industry Regulatory Authority's arbitration unit, at a legal seminar.
Critics of the plan have said it is unfair to deem arbitrators with only a few years of experience as having industry ties and that doing so will reduce the number of qualified arbitrators.
FINRA's board approved the plan in February.
The SEC, however, which oversees FINRA, must review and approve the plan for the change to become effective.
The Wall Street watchdog 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 hear cases as public arbitrators.
Under the new plan, any arbitrator who has had any industry experience, even for brief periods, would not be eligible to serve as a public arbitrator.
Lawyers who worked on behalf of brokerages or investors for more than 20 percent of their time would also be deemed "non-public arbitrators." They could later become public arbitrators if they met certain conditions, including a hiatus from practice, according to a FINRA spokeswoman on Wednesday.
Investor advocates have long pushed for the plan. If approved, the change would mean that investors could opt to have their cases heard by a panel of three so-called public arbitrators who would not include people who had any past industry ties.
Arbitrators who have any industry experience at all could show bias in favor the industry or at least make the process appear as being unfair to investors, they say.
The SEC will request written comment from the public after it receives the plan and consider those views before deciding whether to grant approval.
(Corrects eighth paragraph regarding the definition of lawyers as non-public or public arbitrators)
Reporting by Suzanne Barlyn; Editing by Dan Grebler