Law360, New York (October 6, 2014 1:18 pm) -- The Financial Industry Regulatory Authority last week revealed that its plan to bar people who have worked in the securities industry from serving as public arbitrators could disqualify more than 10 percent of its current roster, but the regulator said it is confident it can still meet investor demand.

FINRA, which runs the dispute-resolution service for brokerage firms and investors, declined to make any changes to plans it floated in June that would permanently ban any securities or futures industry veteran from serving as a public arbitrator.  The self-regulatory organization also wants to sideline attorneys and other professionals from serving as a public arbitrator for five years if they have represented investors. The U.S. Securities and Exchange Commission last week said it has launched a proceeding to decide whether to approve or disapprove FINRA's plan.

Under FINRA's dispute resolution process, a panel of three arbitrators -- at least two of whom are deemed public arbitrators -- is convened to decide investor or employment claims worth $100,000 or more. The chairperson of such panels must be a public representative. FINRA at present allows individuals who have been out of the securities industry for at least five years to qualify as public arbitrators, but the regulator has faced pressure to change the standard.

"Over the years, investor advocates have told FINRA that they do not want arbitrators with industry experience advising the other arbitrators on the panel," Margo Hassan, assistant chief counsel of FINRA Dispute Resolution wrote in a September 30 letter responding to public comments on the plan. "They have slated a clear preference for using expert witnesses and for making their own arguments to the arbitrators about industry practices and procedures.

But in response to nearly two dozen comment letters it received on its proposal, FINRA acknowledge that hundres of individuals currently listed as public arbitrators likely would be knocked off the roster. An informal survey found that 374 out of a pool of 3,567 public arbitrators were registered in the industry at some point, or listed an affiliation with a FINRA-member firm, Hassan said.

Additionally, the regulator said it found roughly 100 public arbitrators who also were affiliated with Public Investors Arbitration Bar Association.

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