Arbitrator Selection: What Information Does FINRA Provide about Potential Arbitrators?

By Dylan Donley, Spring 2014 Graduate Research Assistant

Yesterday, we provided an overview of the FINRA arbitrator selection process. In today’s post, we focus on the information FINRA provides to the parties on arbitrators. When FINRA submits a list or lists of potential arbitrators to the parties, Arbitrator Disclosure Reports are also included for each arbitrator. The Arbitrator Disclosure Reports contain information such as the arbitrator’s name, classification, skills, employment, education, training, conflict information, and any publicly available awards the arbitrator issued.

Further, under FINRA Rules 12402(c)(2) (which governs cases with one arbitrator) and 12403(b)(2) (which governs cases with three arbitrators), if a party requests additional information about an arbitrator, the Director of FINRA will request additional information from the arbitrator, and will send any response to all of the parties at the same time.

As an added layer of protection, FINRA Rule 12405(a) requires arbitrators to disclose certain information about themselves before being appointed to a panel for any given case. Under FINRA Rule 12405(a), the Director of FINRA will notify the arbitrators about the nature of the dispute and identify the parties. Upon learning this information, each potential arbitrator is required to make reasonable efforts to learn of and disclose “any circumstances which might preclude the arbitrator from rendering an objective and impartial determination in the proceeding.” These circumstances may include:

(1)   Any direct or indirect financial or personal interest in the outcome of the arbitration;

(2)   Any existing or past financial, business, professional, family, social, or other relationships or circumstances with any party, any party’s representative, or anyone who the arbitrator is told may be a witness in the proceeding, that are likely to affect impartiality or might reasonably create an appearance of partiality or bias;

(3)   Any such relationship or circumstances involving members of the arbitrator’s family or the arbitrator’s current employers, partners, or business associates; and

(4)   Any existing or past service as a mediator for any of the parties in the case for which the arbitrator has been selected.

This is an ongoing requirement or duty on the arbitrators. Under FINRA Rule 12405(b), even if an arbitrator is selected and he or she later finds out that there is some type of interest, relationship, or circumstance that would render him or her unable to be impartial and objective in deciding the case, he or she must disclose that information at any stage of the proceeding.

If any of the potential arbitrators discloses any such information, under FINRA Rule 12405(c), the Director of FINRA will inform both parties to the arbitration, unless the disclosing arbitrator declines the appointment or voluntarily withdraws from the panel as soon as he or she learns of the circumstance that might preclude his or her objective and impartial determination of the case, or the Director removes the arbitrator.

While the information provided in these reports and the required disclosures made by potential arbitrators is helpful, it may not contain everything a party would want to know in making decisions about the makeup of the panel. In rare cases, potential arbitrators may not disclose all information required of them or may provide incomplete information. In others cases, there may be information not included in the reports or mandatory disclosures that would implicate an issue that is worrisome to one or both parties. Accordingly, it is critical to complete your own due diligence on any given arbitrator before deciding to rank or strike him or her. Be sure to check in with us tomorrow when we’ll focus on the importance of researching arbitrators.