FINRA Publishes Evaluation of Arbitrator Selection Process

FINRA published a report evaluating its arbitrator selection process in a specific arbitration hearing. In the report, FINRA's outside counsel discovered no evidence to suggest the agency engaged in an improper agreement to remove certain arbitrators from arbitration cases, but did make suggestions to improve the selection process.

As previously covered, the evaluation was conducted in response to an Atlanta Superior Court decision relating to an arbitration hearing, where the court determined that the respondent manipulated the arbitrator selection process. In the evaluation, the outside counsel reviewed the FINRA Dispute Resolution Services ("DRS") arbitrator database system, which entailed (i) conducting interviews, (ii) analyzing documents, emails and phone records, and (iii) listening to recordings of relevant arbitration hearings.

Though the report uncovered no evidence that FINRA had engaged in misconduct, it included several recommendations to improve FINRA's resolution services, including:

• instituting additional mandatory training for FINRA DRS staff;

• requiring written explanations of decisions relating to (i) challenges to the arbitrator selection process or (ii) the removal of an arbitrator by DRS staff;

• updating the external procedural review process for the arbitrator selection algorithm to determine if it is still the most effective means for creating random arbitrator lists; and

• amending the DRS manual and rules to clarify staff roles and certain procedures in order to ensure consistency and transparency.