The Financial Industry Regulatory Authority is seeking to modify the way customers select their arbitration panel.

At its meeting last week, the regulator’s Board of Directors authorized FINRA to file amendments to Rule 12403, which governs panel selection. The changes, which would go into effect upon the SEC’s approval, are focused how consumers choose between public arbitrators, who are unaffiliated with the industry, and those who are non-public and have financial services experience.

According to the amendments, parties in all customers cases with three arbitrators (meaning $100,000 or more is in dispute), will see a list of 10 chair-qualified public arbitrators, 10 public arbitrators and 10 non-public arbitrators. The parties can then strike four options on each of the public arbitrator list or select an all-public arbitration panel by striking all of the arbitrators on the non-public list.

If the parties leave one or more of the same non-public arbitrators on the non-public list, the parties could have a majority public panel, which consists of two public and one-nonpublic arbitrator.

Previously, a majority public panel was the default selection. In 2011, FINRA updated its rule to allow for parties to request an all-public panel. “FINRA believes that providing customers with the right to exclude a non-public arbitrator from the panel deciding their case will enhance customers’ perception of the fairnesss of FINRA’s rules and the securities arbitration process,” the regulator wrote in its 2011 notice.

According to Jason Doss, the president elect of the Public Investors Arbitration Bar Association, the all-public panels were such a popular selection that FINRA is looking to make the option clearer and easier for a customer to select.

“This rule is an improvement,” Doss said. “It’s less confusing in that attorneys who may not practice in this area may not miss the fact that they had to ask for an all-public panel at the beginning.”

FINRA declined to comment beyond what was offered in the update from the Board of Governors meeting.

According to its website, FINRA currently has over 6,000 arbitrators on its roster. By definition, public arbitrators are “select individuals who are not required to have knowledge of the securities industry. Non-public arbitrators have a more extensive securities industry background.”

As established in Section 916 of the Dodd-Frank Act, a self-regulatory organization is required to file proposals to the SEC within 15 days of their posting on its website.  The SEC has 45 days from “’the publication date’ of the notice of a proposed rule change to either approve a proposed rule change, disapprove a proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved.”

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