In the wake of a Georgia state court vacating a Wells Fargo arbitration award early last year, the Financial Industry Regulatory Authority (FINRA) filed a proposed rule change with the Securities and Exchange Commission (SEC) on December 23, 2022, that, among other things, principally aims to provide greater transparency regarding potential arbitrators’ conflicts of interest to parties using FINRA’s Dispute Resolution Service’s arbitration forum.

Under the proposed rule, if an arbitrator has a conflict of interest with one of the parties to a FINRA arbitration proceeding, FINRA will employ a list selection algorithm to randomly select a new arbitrator to complete the list. This arbitrator replacement process would take place before the potential arbitrator list is sent to the parties.

Furthermore, if an arbitrator is removed due to a conflict of interest during FINRA Dispute Resolution Service’s manual review of arbitrator names, which would also occur before the potential arbitrator ranking list is sent to the parties, the Director of FINRA’s Dispute Resolution Services must provide the parties with written explanation detailing the decision to remove the arbitrator subject to the conflict.

Additionally, the Director of FINRA’s Dispute Resolution Services may remove an arbitrator for a conflict of interest or bias, either upon request of a party or on the Director’s own initiative at any point after the parties’ receipt of the arbitrator ranking list and before the first hearing session begins.

To read the full rule change proposed by FINRA, please click here.  (LINK BELOW)

Winget, Spadafora & Schwartzberg, LLP is closely monitoring these developments.  Any questions can be directed to our Securities Litigation Practice Group.