The Financial Industry Regulatory Authority (FINRA) recently announced that it would seek to provide investors with the option of excluding industry representatives from the arbitration panel hearing their disputes with broker-dealers. FINRA facilitates and oversees the industry's mandatory arbitration system.

It is widely believed by investors that all-public panels would be fairer to them than the current practice of having at least one industry representative on the panel. Presently, investors are required to enter into agreements with their broker-dealers requiring that all disputes between their customers be conducted through arbitration.

Interestingly, this FINRA proposal comes just two months after the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which, in part, empowers the SEC to ban or otherwise limit mandatory arbitration provisions. State securities law administrators and consumer organizations have expressed the need to ban pre-dispute binding arbitration provisions.

FINRA's proposal must be filed with and approved by the SEC. FINRA's Chief Executive Officer Richard Ketchum stated that the option “would enhance confidence in and increase the perception of fairness in the FINRA arbitration process.”