The Financial Industry Regulatory Authority has narrowed the qualifications for arbitrators who decide cases in its dispute-resolution forum in a push to improve “the quality of the arbitrators.” But investor advocates say the changes will limit the candidate pool and hurt retail investors.
Effective May 24, Finra arbitrators must have a four-year degree, versus the previous requirement of at least two years of college-level credits. Arbitrators must also have at least five years of full-time paid professional work experience that requires advanced training and education. Previously the role called for five years of “paid business and/or professional experience.”
A Finra spokesperson told FA-IQ that the changes “will help address the feedback that we have received that the prior standards discouraged attorneys and other professionals from applying to the roster.”
Finra recruits arbitrators from a variety of backgrounds and areas of professional expertise, including the legal industry, business, accounting, finance, library sciences and liberal arts, according to its website.
But the Public Investors Advocate Bar Association “condemns” the revised guidelines, both for their effect on the arbitrator pool and because the guidelines were issued without prior notification to investor advocate groups, a statement from the group issued Monday said. Piaba further criticized Finra for making no effort to solicit industry feedback.
According to Piaba, the qualification revisions will “drastically limit who can serve as a public arbitrator, excluding experienced small business owners and other qualified professionals.”
Arbitration panels are now less likely to resemble a “typical jury” and will “likely result in increased favoritism for the securities industry,” Piaba said.
Cleveland-based attorney Hugh Berkson, a Piaba member, told FA-IQ that the revisions threaten to undermine the “amazing job” Finra has done in recent years of improving diversity in its arbitrator pool.
“If you have exclusively highly educated folks hearing these cases, they can’t put themselves in the shoes of claimants who come from exceedingly different backgrounds,” Berkson said.
“My retired ironworker or my barista should have the opportunity to have people who are like them hearing their case,” Berkson added.
Piaba also said that the qualifications “overhaul” took place “in the dead of night — without transparency, notice, or stakeholder input.” Berkson said the organization was emailed the changes on Thursday or Friday of last week — five or six days after they took effect.
Meanwhile, the Finra spokesperson told FA-IQ that changes to the arbitrator qualifications had been discussed in meetings — as recently as 2024 — with the National Arbitration and Mediation Committee, one of the self-regulator’s 12 advisory groups. The committee’s 13-member roster, last updated in June 2024, includes at least seven Piaba members, according to a review of Piaba’s online directory.
Finra and investor-advocate groups have long grappled over the fairness of the self-regulator’s arbitrations, with Piaba claiming that customers win merely 30% of Finra arbitrations. And despite Finra’s reported arbitrator head count of 8,100, attorneys who specialize in those proceedings often lament that the arbitrator pool is shallow in many venues. As a result, the same arbitrators continually turn up in the arbitrator-selection process in those venues, these groups contend.
“If FINRA is serious about investor protection and arbitration fairness, it must reverse course and invite public input immediately,” Piaba President Adam Gana said in a statement.