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Wall Street watchdog launches review of securities arbitration system
July 17, 2014 / 6:05 PM / 3 years ago

Wall Street watchdog launches review of securities arbitration system

July 17 (Reuters) - The Financial Industry Regulatory Authority (FINRA) has launched a task force to review its controversial arbitration system in which investors must resolve their legal disputes with brokerage firms, the Wall Street industry-funded watchdog said on Thursday.

FINRA’s new task force, whose 13 members include securities lawyers, industry officials and investor advocates, will review the regulator’s arbitration system for the next year to consider possible changes that would improve its transparency, impartiality and efficiency,” the regulator said in a statement.

FINRA established the task force to get a “fresh look” at the system from the various perspectives of its members, said Richard Ketchum, FINRA’s chairman and chief executive, in an interview. The watchdog also runs Wall Street’s arbitration forum. Investors must agree to resolve legal disputes with their brokerage firms in FINRA’s arbitration system when they sign agreements to open their accounts.

Securities arbitration has always been controversial, with “strong and different views” coming from investor lawyers and brokerage firms, Ketchum said.

Brokerages and investor lawyers typically view the system as imbalanced in the other side’s favor. “It tends to be a situation of people taking issues without having a conversation with the other side,” Ketchum said.

Topics that the task force will address have not yet been set. The task force will establish its own agenda under the direction of its chair, Barbara Black, a professor and director of the Corporate Law Center of the University of Cincinnati College of Law, Ketchum said.

One possible focus could be a FINRA plan that would restrict industry veterans from acting as arbitrators in many disputes between investors and their brokerages, Ketchum said.

Other task force members include Joseph Borg, director of the Alabama Securities Commission, Barbara Roper, director of investor protection for the Consumer Federation of America, an advocacy group, and Harry Walters, who co-heads wealth management litigation for Morgan Stanley.

The task force will report back to FINRA with its findings. (Reporting by Suzanne Barlyn; Editing by Cynthia Osterman)

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