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FINRA Proposes New Rules to Fix Unpopular Arbitrator Selection Process

Posted on September 1st, 2026 at 3:49 PM
FINRA Proposes New Rules to Fix Unpopular Arbitrator Selection Process

From the desk of Jim Eccleston at Eccleston Law

The Financial Industry Regulatory Authority (FINRA) wants to change how it selects arbitrators when its standard process fails to produce enough available panelists. FINRA says its current backup method has "proved unpopular" among parties involved in disputes.

According to AdvisorHub, FINRA filed the proposal with the Securities and Exchange Commission (SEC) to address situations where the first round of ranking and selecting arbitrators does not work out. This can happen when the two sides fail to agree on enough combined arbitrators, or when a chosen panelist withdraws or becomes unable to serve.

Currently, when the initial list comes up short, FINRA rules force the disputing parties to accept substitute arbitrators chosen through a random selection algorithm. Parties can only challenge those randomly assigned arbitrators "for cause," meaning they have little say in who ends up on their panel. AdvisorHub notes that FINRA acknowledges this "extended list appointment" process has fallen flat with the parties who have to use it.

The new proposal would allow parties to choose arbitrators from a new list. FINRA says this approach gives parties more say over who sits on their panel.

The proposal also creates an official $300 honorarium for every four hours a substitute arbitrator spends preparing to join a panel already in progress. This payment would compensate arbitrators for reviewing case records and listening to audio recordings from any hearings that already took place before they joined.

According to AdvisorHub, FINRA opened a comment period in March seeking industry feedback on other potential arbitration reforms. Those discussions include an industry-backed proposal aimed at curbing what critics call "runaway" punitive damage awards.

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

Tags: eccleston, eccleston law, finra, securities arbitration, arbitrator selection, finra rules, dispute resolution

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FINRA Proposes New Rules to Fix Unpopular Arbitrator Selection Process

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