Plaintiff’s Bar Urges FINRA To Reject Industry’s Arbitration Recs

By Sarah Jarvis 

Law360 (August 4, 2025, 5:35 PM EDT) — The Public Investors Advocate Bar Association on Monday urged the Financial Industry Regulatory Authority to reject industry recommendations to loosen its arbitration rules, calling on the brokerage industry regulator to “resist pressure from industry groups seeking to dilute hard-won safeguards.”

PIABA’s letter to FINRA advised the regulator to reject “the bulk of” the recommendations that the Securities Industry and Financial Markets Association proffered in its own letter last month. In its July letter, the industry group called for “limiting punitive damages awards, enhancing arbitrator training and qualifications, improving the discovery and hearing processes, and addressing issues with the adjudication of Form U5 defamation claims,” among other things.

PIABA said Monday that FINRA would go against its own investor protection mission by adopting SIFMA’s recommendations, adding it would “allow the securities industry to escape accountability for damages created by industry members.”

“We encourage FINRA to remain steadfast in support of its mission to protect investors and not betray its reason for existence in the hope that appeasing the industry will allow it to escape political attacks from the industry,” PIABA said.

Adam Gana, president of PIABA and managing partner of Gana Weinstein LLP, called SIFMA’s arbitration reform recommendations “blatantly self-serving.”

“SIFMA’s claim that this will improve FINRA’s ‘fairness and integrity’ is an insult to the intelligence of Main Street investors and folks saving for retirement,” Gana said in a statement. “These rule changes would make it easier for bad actors to escape responsibility and harder for their victims to seek justice.”

SIFMA said in a statement that its recommendations “were made in good faith in response to FINRA’s interest in industry’s views on reform and would make the forum fairer and more efficient for the benefit of investors, industry, and FINRA.”

“We believe our recommendations balance the interests of all stakeholders in FINRA arbitration, and, above all, ensure investor protection,” the group said.

FINRA said in a statement that it “strives to provide a fair, efficient and effective arbitration forum for all participants.”

“We engage with and welcome feedback from all practitioners of the forum to ensure that we are continuously improving it,” the regulator said.

FINRA put out a call in March for advice on how it can modernize its rules and regulatory approaches. In SIFMA’s July letter, the group listed the regulator’s arbitration process — through which complaints against FINRA members are adjudicated and broker-dealers are potentially penalized for violating the organization’s rules — among the top areas ripe for reform.

Over the past year, the brokerage industry regulator has been sued multiple times on claims that the in-house disciplinary proceedings, which are separate from its arbitration proceedings, are unconstitutional because they deny participants the right to a jury trial and are conducted without necessary government oversight.

FINRA has so far been successful in the court cases, arguing that it is not a government entity but a private membership-based organization and that it is subject to the oversight of the U.S. Securities and Exchange Commission.

In Monday’s letter, PIABA urged FINRA to reject SIFMA’s proposal to allow member firms to divert customer claims involving large dollar amounts to alternative arbitration forums, saying the proposal “is a transparent attempt to circumvent FINRA’s established procedures … and avoid liability in high stakes cases.” It would also lead to fragmentation and diminish FINRA’s oversight capacity, per the letter.

“Under SIFMA’s proposal, investors harmed by identical conduct would be split between systems: smaller claims in FINRA, larger claims dragged into unfamiliar and opaque forums, solely because the investor had more at stake,” PIABA said. “This isn’t investor protection; it’s forum shopping by the industry to avoid accountability.”

Among other things, PIABA said SIFMA’s recommendation to limit damages would shield the industry from meaningful consequences. And there is no evidence that arbitrators have been awarding excessive or inappropriate punitive damages, PIABA said.

PIABA also said FINRA should not create “more burden, costs and inefficiency” by expanding motions to dismiss, nor should the regulator limit discovery or require arbitrators to have additional subject matter expertise, as SIFMA recommended.

The group said it is “deeply concerned that FINRA’s core mission is at risk if it continues to retreat from a strong investor protection posture.”

PIABA said that retreat includes FINRA’s June announcement that it would return $50 million to its members in light of “material excess revenues,” even though FINRA member firms are on the hook for more than $75 million in awards customers won between 2019 and 2023. The regulator also narrowed its arbitrator qualification standards “without meaningful notice or input from investor advocates,” PIABA said.

PIABA’s Gana said in a statement that FINRA’s apparent deregulatory agenda “sooner or later will hurt investors and markets, and SIFMA is cheering it on.”

“If FINRA continues on this path, confidence in the arbitration forum — and the industry at large — will only continue to erode,” Gana said.

–Additional reporting by Jessica Corso. Editing by Vaqas Asghar.