In 2000, NASD (now FINRA) spun off its dispute resolution subsidiary from its regulatory functions to bolster investors’ perception that the forum is neutral and to enhance the credibility of its securities arbitration and mediation services. Last month, the SEC released for public comment a proposal FINRA filed to merge its Dispute Resolution subsidiary into and with FINRA Regulation, Inc.
Comments are due today. I reprint below the comments I submitted, which concur largely with those expressed in the comment letter filed by the Public Investors Arbitration Bar Association (PIABA). Kudos to PIABA for providing the factual detail supporting its comments, which I join.
Dear Mr. Fields:
I write to express my grave concerns about the proposed merger of FINRA Dispute Resolution into and with FINRA Regulation, Inc. I share many of the concerns expressed in the comment letter dated November 3, 2015 from the Public Investors Arbitration Bar Association (Hugh Berkson, President). More specifically, based on the factual detail supplied in the PIABA letter, I believe the proposal (1) contradicts statements NASD made in 1999 when it sought approval for the creation of Dispute Resolution as an independent subsidiary (2) contradicts statements the SEC made in 2000 in its Order approving the 1999 proposal (3) does not provide sufficient support for FINRA’s conclusory justifications for the merger and (4) if approved, will negatively impact investors’ perceptions of the neutrality and thus fairness of the forum.
Articles appearing on the front page of the New York Times this week harshly criticizing consumer arbitration at other forums demonstrates the public mood: arbitration is under attack. Although I have argued previously that FINRA arbitration is a fair process — and still believe it is, this proposal will no doubt provide ammunition to critics that the forum is biased in favor of industry disputants. This, in turn, will undermine the legitimacy and public acceptance of the process.
I urge the SEC to ask FINRA to withdraw its proposal so as to maintain the institutional separation of its dispute resolution and regulatory functions.
Thank you for considering these comments.
Jill Gross, Professor of Law, Pace Law School