FINRA Dispute Resolution Task Force: Enhancing Securities Dispute Resolution One Recommendation at a Time

By: Alexandra Hughes, Spring 2016 Graduate Research Assistant

alexhughesHandling 99 percent of securities arbitrations and mediations in the United States makes the Financial Industry Regulatory Authority’s (FINRA) Dispute Resolution division the largest securities dispute resolution forum in the country. However, FINRA is always looking for ways to improve its arbitration and medium forum. In June 2014, FINRA created a task force to propose recommendations that would “enhance the transparency, impartiality, and efficiency of FINRA’s securities dispute resolution forum for all participants.” The task force was composed of public and industry sector individuals to ensure representation of all viewpoints and interests.

FINRA created the task force recognizing “the need to reflect on what its dispute resolution forum will look like in the next 20 years.” As such, the task force was unlimited in its examination of topics. However, noting the 2008 financial crisis, passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the current lack of transparency of FINRA arbitration, the task force largely focused its attention on issues concerning customers of brokerage firms. Thus, the task force is particularly relevant to the Investor Advocacy Clinic, an organization dedicated to representing investors.

Charged with the task of improving FINRA’s arbitration and mediation forum, the task force: identified topics for review, established ten subcommittees to investigate issues and gather information from various viewpoints, reviewed the reports and findings of the subcommittees, released an interim summary of findings, and approved a final report. The task force’s final report of recommendations to FINRA’s National Arbitration and Mediation Committee, submitted December 16, 2015, can be accessed online. The task force’s recommendations were arrived at by:

  • Identifying noteworthy issues;
  • If there was a consensus among task force members, offering suggestions on the issues ;
  • If there was not a consensus among task force members, offering different perspectives on the issue; or
  • Identifying impediments or possible negative consequences that might result from addressing the issue.

In total, the task force proposed 51 recommendations. In a summary of key issues, the task force noted: “the most important investment in the future of the FINRA forum is in the arbitrators.” As such, the task force spent the most time on issues related to arbitrators and proposed the greatest number of recommendations for this category. The task force identified encouraging written explained arbitrator decisions as their second most important category of recommendations because it would increase transparency. The task force additionally identified the issue of mandatory arbitration as an important area of consideration, but did not propose any recommendation.

This blog series intends to summarize the FINRA Dispute Resolution Task Force Report, making the lengthy report more accessible for interested investors and students. This blog post only served as an introduction to the report. Blog posts Part 2 through Part 8 of this series will discuss those topics for which the task force had recommendations. Blog posts Part 9 and Part 10 of this series will briefly discuss those topics for which the task force considered but ultimately had no recommendations because no consensus of the task force members could be reached. Be sure to check back in with us over the coming days to learn more about the task force’s work.