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Securities Compliance Sentinel Analysis of cutting-edge securities industry issues

Is This The Beginning Of The End To Arbitrations

Posted in Arbitration, Broker-Dealer Regulation, Intra-Industry Arbitrations

This past week, members of the North American Securities Administrators Association lobbied Congress to do away with mandatory arbitration provisions from customer agreements.  In a speech before this group, SEC Commissioner Aguilar expressed that mandatory arbitration agreements must go.  Would this be a bad thing?

Arbitration has be seen as the preference of the industry because of the perception that it is quicker, more cost effective, and likely to be a more favorable forum than a court.  In the hundreds of customer arbitrations that I have handled, this has certainly not always been the case.  Plus, FINRA arbitrations are now being skewed in favor of the claimants.

In arbitration, there is no meaningful way to challenge frivolous claims like you would in a court.  I can think of one arbitration hearing that I had (which lasted 44 days) where being in a court would have been a better course.  At least there I could have gotten some of the claims that were without merit dismissed.

So where does this leave us?  I think that the likely result will be a change, not an outlaw of arbitrations.  Brokers will likely have to provide their customers the option of being in court or arbitration.

From my perspective, this may not be a bad thing.  When faced with bogus claims, which are many, I would always want to be in a court where I have a meaningful way to challenge those claims.  Let me know your perspective.