PIABA Claims FINRA Allows Firms to Remove Arbitrators Based on Past Cases
The group for attorneys representing investors argues FINRA’s rule unfairly benefits large brokerage firms and sends an “intimidating message” to arbitrators who decide against them.
Patrick Donachie, Senior Reporter, Wealth Management
January 22, 2026
Attorneys representing investors in arbitrations want FINRA to rethink allowing brokerage firms to request arbitrators be removed from cases solely on the basis that they’ve previously arbitrated disputes involving that firm.
Michael Bixby, the president of the Public Investors Advocate Bar Association, said FINRA must revise its “unlawful and absurd application” of existing rules, arguing it “tilts the scales in favor of the industry” and “undermines the arbitration system.”
“Ultimately, it also punishes arbitrators who award damages against brokerage firms and sends an intimidating message that holding brokerage firms accountable for misconduct is frowned upon and may result in removal from future cases,” Bixby said.
In his letter to FINRA CEO Robert Cook, Bixby cited what PIABA saw as a “serious and recurring problem” with FINRA’s application of Rule 12407(a), which governs when a director can remove an arbitrator due to “conflict of interest or bias.” According to the rule, the bias must be “definite and capable of reasonable demonstration, rather than remote or speculative.”
According to PIABA, FINRA Dispute Resolution has been taking an arbitrator’s prior service in FINRA cases and on prior awards into consideration when ruling on removal under the rule, and has “repeatedly” removed arbitrators solely because of their work on another case.
Bixby called the practice “not merely legally incorrect, but practically unworkable and leads to absurd results,” questioning if this meant that anytime an arbitrator hears a case involving Wells Fargo, the arbitrator could no longer serve on proceedings involving the wirehouse.
To Bixby, the rule benefited wirehouses and large firms at the expense of customer claimants, who are far more likely to appear only once in arbitration proceedings. Therefore, the large firms can try to remove any arbitrator who has ruled against them in the past.
Individual customers get no such benefit; according to PIABA, the approach “tells arbitrators that if they want to serve on panels, they should not award damages against brokerage firms.”
Representatives from FINRA declined to comment.
Additionally, PIABA found the rule’s alleged application odd, considering the dearth of qualified arbitrators; to Bixby, FINRA risked transforming arbitrators’ “experience and expertise into liabilities rather than assets.”
“The most qualified and knowledgeable arbitrators would be ineligible to serve precisely because of their relevant experience,” he wrote.
PIABA also argued prior legal precedent was in their favor, citing numerous cases, including Morgan Keegan & Co. v. Smythe in 2014. In that case, the brokerage firm sought to remove appointed arbitrators on the basis that they’d previously ruled against the firm and mandated monetary awards in “substantially similar” cases.
However, the arbitrators refused to step down, and FINRA backed them up. The panel ultimately ruled against the firm, and the ruling (as well as the arbitrators’ decision) was upheld by a federal appeals court, calling the firm’s bias accusations nothing more than “speculation.”
“To the extent that FINRA now interprets its rule differently than it did in the Morgan Keegan context, FINRA has given no explanation or public rationale for its change in practice,” Bixby wrote.