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How Are FINRA Arbitrators Selected?

Investors who suffer losses as a result of broker misconduct usually go through the Financial Industry Regulatory Authority (FINRA) to recover their money. FINRA helps investors resolve their disputes by providing arbitration and mediation services. An essential part of this process involves choosing the FINRA arbitrators to preside over your dispute.

In most cases, a brokerage firm will use a lawyer during arbitration proceedings. Securities lawyers help their clients choose the best arbitrators for their case. If you don’t hire a FINRA arbitration attorney, you could face a serious disadvantage. 

Contact the Kurta Law Firm today to discuss your case. You can reach us by phone at 877-600-0098 or by email at info@kurtalawfirm.com.

An Arbitrator’s Role in the FINRA Arbitration Process

FINRA writes rules and enforces compliance with FINRA rules and federal securities laws. If brokers violate FINRA rules or securities laws, FINRA can fine, suspend, or bar them from the industry. FINRA also provides investors with an arbitration forum to resolve disputes. FINRA arbitrators hear the arbitration cases, review the materials for each case, and issue a final, binding decision. The FINRA Arbitrators’ Guide provides a complete description of an arbitrator’s role.

What Qualifications Do FINRA Arbitrators Have?

As a general matter, FINRA arbitrators need at least five years of paid business or professional experience and at least two years of college-level credits. Two types of arbitrators can preside over FINRA arbitration proceedings: public arbitrators and non-public arbitrators. FINRA refers to individuals who do not have specialized knowledge of the securities industry as “public” arbitrators. Non-public arbitrators include individuals who have worked in the financial sector. Additionally, non-public arbitrators include people who currently provide or previously provided services to financial industry clients or parties engaged in securities disputes.

Before presiding over any disputes, FINRA arbitrators undergo a Basic Arbitrator Training Program. To proceed with a FINRA arbitrator application, the prospective arbitrator must pass two separate assessments. Arbitrators who pass the Basic Arbitrator Training Program can enroll in advanced arbitrator training. 

FINRA conducts a preliminary review of the completed application before forwarding it to the National Arbitration and Mediation Committee (NAMC) for final approval. Once the arbitrator receives final approval and successfully completes the Basic Arbitrator Training Program, FINRA adds them to the arbitrator roster.

How Do FINRA Arbitrators Receive Arbitration Assignments?

Once they receive approval to serve as an arbitrator for FINRA, the arbitrator’s name will appear on potential arbitrator lists sent to parties commencing arbitration. Once the arbitrator accepts a case, they must review all its materials. FINRA assigns each arbitrator to one primary hearing location, typically the hearing location closest to the arbitrator’s primary residence. FINRA operates 69 hearing locations, including San Juan, Puerto Rico.

When Is FINRA Arbitration the Right Choice for Investors?

Most investment contracts contain an arbitration clause requiring parties to utilize FINRA arbitration to recover their losses. Arbitration operates similarly to a civil trial. However, an arbitration takes significantly less time and money compared with a trial. Depending on the amount of money at issue, arbitration panels are made up of either one arbitrator or a panel of three arbitrators. Unlike a trial, the documents submitted in arbitration are generally confidential. However, FINRA posts the results of arbitration proceedings in its Arbitration Awards Online Database.

According to FINRA arbitration statistics, approximately 69% of arbitration cases between 2012 and 2016 resulted in the parties reaching a settlement agreement. 

How to Initiate the FINRA Arbitration Process

In many cases, FINRA arbitration begins when an investor files a Statement of Claim and other supporting documents with FINRA. The Statement of Claim should include a description of the dispute, the identity of the parties involved, and the amount of money at issue. You should also send any other supporting documentation to FINRA. The Statement of Claim gives the investor their first opportunity to lay out their side.

Additionally, FINRA requires filing a Submission Agreement before initiating the proceedings. The Submission Agreement lists the parties to the arbitration and confirms FINRA as the arbitration administrator. The Submission Agreement also establishes the parties agree to abide by the arbitrators’ decision in the event of a hearing.

The person who files the Statement of Claim to initiate the arbitration proceedings has the responsibility of paying the appropriate fees. Once this is done, FINRA serves the Statement of Claim on the opposing party. You can file a Statement of Claim online or by mail.

FINRA recommends hiring an attorney to help navigate the arbitration process. Remember, brokerage firms typically hire an attorney to represent themselves and their employees. Not having your own attorney can put you on an uneven playing field with your opponent. You don’t have to deal with the arbitration process alone. Contact one of our securities lawyers at the Kurta Law Firm today.

How Many Arbitrators Preside Over Disputes?

Your case can have one to three arbitrators presiding over the claim. It all depends on the amount of money involved. If your case involves less than $100,000, one arbitrator presides over the proceedings. For cases involving claims of more than $100,000, a three-arbitrator panel usually presides over the proceedings.

Selecting Arbitrators for Your Case

The FINRA arbitration process gives the parties a say in which arbitrators will preside over your dispute. FINRA utilizes a computer algorithm called the Neutral List Selection System (NLSS) to randomly generate a list of potential arbitrators from FINRA’s arbitrator roster. The number of lists generated and the number of arbitrator names on each list depends on the specific type of case being arbitrated.

  • For claims of up to $100,000.00, each party receives one list, including 10 chair-qualified public arbitrators. Each party can strike up to four arbitrators, leaving six arbitrator names remaining on the list. The parties then rank the remaining six arbitrators in order of priority.
  • For claims over $100,000.00, the parties receive three lists of potential arbitrators. One list contains 10 chair-qualified public arbitrators, the other contains 15 public arbitrators, and the final list contains 10 non-public arbitrators. On the list with 10 chair-qualified public arbitrators, the parties can strike up to four arbitrators and rank the remaining arbitrators by priority. On the list of 15 public arbitrators, each party can strike up to six potential arbitrators and rank the remaining arbitrators by priority. The parties may strike all potential arbitrators on the final list of non-public arbitrators. When this occurs, the arbitration panel is composed of only public arbitrators.

FINRA Arbitrator For-Cause Challenges

In some cases, you can challenge the selected arbitrator(s) “for cause.” Without good cause, a party typically waives arbitrator challenges if they aren’t filed in a timely manner. Examples of for-cause challenges likely resulting in the dismissal of a potential arbitrator include instances when an arbitrator:

  • Possesses a firm opinion or belief as to the subject of a case;
  • Holds a personal bias toward a party;
  • Is or was related by blood or marriage to a party, its attorneys, or witnesses;
  • Has a business relationship with one of the parties;
  • Was previously accused of wrongdoing in a prior action by a party, its attorneys, or witnesses;
  • Testified as an expert witness against a party during the past five years; and
  • Has a financial interest in the subject matter of the dispute.

To avoid conflicts of interest, FINRA allows these for-cause challenges when appropriate.

Have Questions About the FINRA Arbitration Process? Contact Kurta Law Today

If you suffered investment losses as a result of your financial advisor’s investment recommendations, FINRA arbitration proceedings offer you an opportunity to recover those losses. However, it’s crucial you present a strong case in your arbitration proceedings to give you the best chance of recovering the full extent of your losses. Your Statement of Claim provides the opportunity to share your side of the story and show the arbitrator(s) how your broker’s recommendations lost you money.  As stated earlier, a broker’s firm will usually hire a lawyer to represent the broker against your allegations. Having an experienced securities attorney to assist you in filing your Statement of Claim and representing you in the arbitration proceedings can give you the same advantage. Contact our office today to discuss your FINRA arbitration claim.