FINRA, the Securities Industry's Mandatory Arbiter, Shouldn't Be Allowed to Expand
Dec 27th 2009 10:00AM
Updated Dec 27th 2009 8:46PM
Investors who go before FINRA panels for arbitration face rough sledding. More than 50% of the time, they get nothing. When they do win, they are awarded a fraction of their requested damages. It's not surprising that a comprehensive study found most participants in these arbitrations believed the sessions were biased and unfair.
FINRA's mandatory arbitration process is so bad that the North American Securities Administrators Association announced its support for a ban on mandatory arbitration, noting that FINRA's system is "inherently unfair to investors." NASAA's membership includes securities administrators in all 50 states.
Legislation pending in Congress would ban all mandatory-arbitration clauses in consumer agreements, including agreements with brokers. Naturally, FINRA isn't exactly throwing its support behind such a change. Why should clients of brokers get an impartial hearing?
Bringing FINRA's Pro-Corporate Bias to New Venues
Against this disturbing backdrop comes the stunning news that FINRA is seeking to expand its arbitration business to nonsecurities matters. According to a recent announcement soliciting business from corporate clients, FINRA notes that "employee disputes can be distracting and deter from the primary goal of running your business." It claims that its expanded services can help employers who are "looking for a faster, more efficient way to address customer complaints."
Scot D. Bernstein, a securities arbitration lawyer with vast experience arbitrating disputes before FINRA panels, views the organization's expanded services with skepticism. "FINRA's announcement doesn't promise its prospective corporate clients that customers who suffer harm will be compensated fairly," he says. "I doubt that omission is a coincidence."
FINRA should be shrinking -- not expanding -- its toxic arbitration services. Industry-run arbitration of securities disputes should be optional, not mandatory. The current system re-victimizes hapless clients who have been harmed by the misconduct of their brokers.
FINRA's expansion plan gets my nod for the worst idea for 2010.