Why Are FINRA’s Arbitrator Disclosure Guidelines So Confusing?

 

The Financial Industry Regulatory Authority (FINRA) administers arbitration proceedings to resolve disputes between its member brokerage firms and investors. Arbitrator selection by the parties, like jury selection in a court trial, is a very important part of any arbitration proceeding. Truthful disclosure by arbitrators of facts that could create even the appearance of partiality or bias is critical to both the perceived and actual fairness of arbitrations.

Thus, for good reason, arbitrators are required to disclose all relationships or circumstances involving not only themselves, but also members of their immediate family that might create the appearance of partiality or bias. For example, if a potential arbitrator or a member of his or her immediate family is or was formerly employed by the respondent brokerage firm in the case at hand, that would create the appearance of partiality or bias, to say the least.

FINRA provides the potential arbitrators with written guidelines that define what is meant by an “immediate family member” to use in making their disclosures to the parties. The parties or their counsel refer to the disclosures in making their arbitrator selections. These FINRA guidelines define the term “immediate family member” without specific reference to the arbitrator’s in-laws.

After the arbitrators have been selected, FINRA provides each arbitrator with a different disclosure form called the Arbitrator Disclosure Checklist, which is designed to elicit additional information that may have arisen after the initial disclosures.

The Arbitrator Disclosure Checklist contains a list of questions regarding the arbitrators and members of their immediate family, and it also defines the term “immediate family member.”

But this time, unlike the definition of “immediate family member” contained in the guideline provided to the potential arbitrators before they were selected, the Arbitrator Disclosure Checklist states in part: “To the extent you have knowledge, please also consider the employment, financial, and other interests of your mother, father, son and daughter in-laws when answering questions on this form referring to family members.”

This compels the question: Why doesn’t FINRA clearly instruct potential arbitrators to provide information about in-laws so the parties can consider it BEFORE the arbitration panel has been seated? Given the importance of impartiality, wouldn’t it make sense for FINRA to be more clear up front rather than after the fact?