Finra chief: Let the SEC rule on mandatory arbitration clause

The head of the Financial Industry Regulatory Authority Inc. today threw the group's support behind allowing the Securities and Exchange Commission to ban mandatory arbitration clauses in securities contracts.

The head of the Financial Industry Regulatory Authority Inc. today threw the group’s support behind allowing the Securities and Exchange Commission to ban mandatory arbitration clauses in securities contracts.
“Finra has long maintained that a determination about whether mandatory arbitration agreements should be allowable is a decision best made by Congress and the SEC,” Richard Ketchum, Finra chairman and chief executive, testified to the House Financial Services Committee, which held a hearing today on reforming broker-dealer and investment adviser regulation.
Finra, which operates the arbitration forum used by the brokerage industry, does not object to a proposal by the Obama administration and House Capital Markets Subcommittee Chairman Paul Kanjorski, D-Pa., that would give the SEC the authority to prohibit or limit mandatory arbitration clauses, which are included in most brokerage contracts, Mr. Ketchum said.
The securities industry, of course, defended the practice of including mandatory arbitration clauses in securities contracts, which customers must sign in order to have a brokerage account.
“These agreements ensure that both sides are treated fairly and disputes are handled in a timely and cost-effective manner,” John Taft, head of RBC’s U.S. wealth management business, said at the hearing. Mr. Taft testified on behalf of the Securities Industry and Financial Markets Association.
Without Finra’s support of mandatory arbitration clauses, the proposal is more likely to be enacted by Congress, where some Democrats want an outright ban on all mandatory arbitration clauses.
Indeed, Texas Securities Commissioner Denise Voigt Crawford, president of the North American Securities Administrators Association Inc., called for Congress to enact legislation requiring the SEC to prohibit mandatory arbitration clauses in securities contracts. “If arbitration is really as fair, inexpensive and quick as its proponents claim, then these benefits will prompt investors to choose arbitration,” she said.