The race, gender and age of securities arbitrators bear little resemblance to the broad population of U.S. investors, a group of investor lawyers said on Friday.
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Those and other personal characteristics, such as profession, may affect how arbitrators for the Financial Industry Regulatory Authority decide cases in the brokerage industry's mandatory arbitration process, said the Public Investors Arbitration Bar Association (PIABA), in a statement.
The FINRA arbitration system, which has long been steeped in controversy, is already under internal review. A task force FINRA assembled in July will hold its first meeting on Oct. 10 to identify potential issues that may require change.
What's more, the longtime head of FINRA's arbitration unit, Linda Fienberg, will retire this month. FINRA plans to replace her with one of two internal candidates.
PIABA said it will detail its findings on Tuesday, Oct 7. The group analyzed the backgrounds of 5,375 FINRA arbitrators. The alleged demographic problems stem from FINRA's recruiting practices, the group said. PIABA is also concerned about a "lack of transparency" related to FINRA's recruitment practices for arbitrators, it said.
PIABA's president, Jason Doss, declined further comment on Friday. A FINRA spokeswoman also declined to comment.
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FINRA, Wall Street's industry-funded watchdog, runs the securities arbitration system in which investors must resolve legal disputes with their brokerages. About 6400 arbitrators serve in FINRA's system.
PIABA's upcoming report is not the first time the group has raised questions about the transparency of FINRA's arbitration system. PIABA has also been involved in a nearly five-year-long battle over whether the U.S. Securities and Exchange Commission, which oversees FINRA, should release records about its supervision of how FINRA selects arbitrators.
PIABA filed a lawsuit after the SEC rejected its Freedom of Information Act request for the records in 2010. The group is waiting for a decision from the U.S. Court of Appeals for the D.C. Circuit, which heard arguments in the case on Sept. 5.
FINRA, in a letter to the SEC on Sept. 30, said its arbitration team devotes significant resources to recruiting new arbitrators, especially those who are not attached to the securities industry. The regulator, for example, has recruited via AARP and the American Bar Association, it said.
(Reporting by Suzanne Barlyn; Editing by Linda Stern and Chris Reese)