SIFMA CEO Recommends FINRA Arbitration Reforms

SIFMA President and CEO Kenneth E. Bentsen, Jr. argued that FINRA must implement targeted reforms to its arbitration forum to prevent undermining the fairness and integrity of the dispute resolution process.

In a blog post, Mr. Bentsen explained that while FINRA arbitration resolves nearly all industry disputes and remains cost-effective for many, an increasing volume of complex cases has exposed shortcomings in the system. He warned that if left unaddressed, these issues could erode confidence in the forum. Mr. Bentsen highlighted that SIFMA originally detailed these recommendations in a July 2025 letter and identified them as a top priority in its response to FINRA’s rule modernization review under Regulatory Notice 25-04.

To preserve the benefits of the process while enhancing transparency, Mr. Bentsen recommended:

1. Allowing Limited Flexibility for Alternative Forums. Mr. Bentsen suggested that in narrow circumstances—such as high-value, complex, or institutional claims—parties should be allowed to agree to resolve disputes outside of FINRA. He noted this would free up FINRA resources for retail investors.
2. Permitting Reasonable Limits on Punitive Damages. Mr. Bentsen argued that FINRA rules should allow parties to agree to "limit punitive damages [where] such limits are permitted by applicable state law, [thereby] promot[ing] consistency and predictability."
3. Clarifying Guidance on Form U5 Defamation Claims. Pointing to the prevalence of these disputes, Mr. Bentsen called for clearer guidance and "targeted training for arbitrators on applicable legal standards" to ensure defamation claims are handled consistently.
4. Updating Procedural Rules for Efficiency. Mr. Bentsen recommended updating rules governing discovery, hearing management, and the early dismissal of claims to address threshold issues sooner and prevent unnecessary delays.
5. Strengthening Arbitrator Quality. Mr. Bentsen urged FINRA to improve arbitrator training, compensation, and oversight to address quality issues, "particularly as cases grow more complex."

Mr. Bentsen concluded that these reforms would not alter the fundamental nature of FINRA arbitration but are necessary to reinforce its role as a trusted mechanism for dispute resolution.