Federal regulators gave their blessing Thursday to a proposal to overhaul FINRA's procedures for striking arbitrators from the three-member panels that oversee many broker disciplinary and dispute cases.
Among other things, the changes codify the Financial Industry Regulatory Authority's current practice of allowing arbitrators to be removed from the panels and replaced before an arbitration hearing begins. They also call on the director of dispute resolution services at the broker-dealer self-regulator to put in writing the reasons for accepting or rejecting a request to pull a certain panel member.
Arbitrators can now be removed for having various conflicts of interest, such as having had previous dealings with a party in a given case. The new rule requires the director of dispute resolution services to root out these conflicts by manually going through the names of arbitrators who have been shortlisted for a given case.
The changes, which received final approval from the Securities and Exchange Commission on Thursday, come in response to a
Fred Pinckney, a securities lawyer and long-time FINRA arbitrator, had initially been selected to serve on the three-member panel that was to reach a resolution in a dispute between a pair of investors and Wells Fargo Advisors. But the lawyer representing Wells Fargo in the case, Terry Weiss of the Atlanta-based law firm Maynard Cooper & Gale, was able to have Pinckney removed after complaining of "hostile feelings" toward him stemming from a previous case involving Merrill Lynch.
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Lowenstein Sandler eventually found nothing amiss in Pinckney's exclusion from the Wells Fargo arbitration panel. But its report nonetheless contained recommendations for bringing greater transparency and consistency to the way FINRA selects arbitrators.
