Controversy Continues Over Arbitration Study Findings
A report released on February 6 entitled, "An Empirical Study: Perception of Fairness of Securities Arbitration," concludes that 55.1% of respondents were dissatisfied with the outcome of their arbitration cases. Many of those surveyed also viewed the arbitration system as unfair and their arbitration panels as biased. The report was based on responses from more than 3,000 customers, lawyers and representatives of brokerage firms. (This blog reported on this study on February 7th).
Sara Hansard of Investment News recently revisited this study in a February 25th article. Although the Securities Industry and Financial Markets Association (SIFMA) and the Financial Industry Regulatory Authority Inc. (FINRA) participated in the survey, both claim that the 13% response rate was too low and therefore conclusions were "mixed."
Managing director and associate general counsel of SIFMA, Kevin Carroll, said that it was unfair to highlight only investor dissatisfaction with the arbitration system. In a statement about the survey, SIFMA said that 58% of respondents characterized arbitrators as competent and 73% said they listened to arbitrators. "The [survey] results don't show a system that's broken," Carroll said.
State regulators contend that the survey highlights the need for removing industry members from arbitration panels.
"Now we have a report that shows that [investors] don't [believe that the arbitration system is fair], and everyone's trying desperately to put a spin on this," said Bryan Lantagne, Chairman of the arbitration working group sponsored by the North American Securities Administrators Association Inc. "These numbers really speak volumes to what the investors believe. That's crucial to the forum. If they feel they're forced to go into a forum that's biased, it perverts the program," Lantagne advised.
In a statement issued on February 13, Massachusetts Secretary of the Commonwealth, William Galvin called on FINRA to bar arbitrators from having ties to the securities industry. According to the statement, doing so would be "a reasonable first step, which will send an immediate message to investors that FINRA has heard them and will take action to address their legitimate concerns."
Carroll disagrees. "[State regulators just] want to dismantle the entire system. Part of that plan is to get rid of the industry arbitrator," he said.
