Finra: Virtual Arbitration Is Here to Stay

By Ming Li November 20, 2020

The virtual hearings on Finra’s independent arbitration forum have received positive feedback from various parties and will continue to remain available even when the pandemic is over, according to a senior executive at the self-regulator.

Finra paused in-person arbitration and mediation proceedings in light of the Covid-19 pandemic in March and have kept them mostly postponed until the end of January 2021, unless the parties involved agree to proceed.

As of the end of October, 93 arbitration cases conducted one or more hearings via Zoom. Thirty-eight of those were customer cases and 55 were industry cases, Finra data shows.

“We’ve received positive feedback from both plaintiff’s counsel and respondent’s counsel, as well as arbitrators who have participated in Zoom proceedings thus far,” Richard Berry, director of the Office of Dispute Resolution at Finra, tells FA-IQ.

“They have expressed their desire that we continue to offer Zoom hearings after the pandemic. I think it’s fair to say Zoom is here to stay,” he says. “We believe Zoom will be a popular option post-pandemic.”

Berry said the pandemic presented Finra Dispute Resolution Services — which oversees the arbitration forum — with “unprecedented challenges,” but the team was “well-positioned to adapt as needed and continue to provide an efficient and fair dispute resolution option to parties.”

“We have pulled out all the stops, making sure arbitrators are comfortable with Zoom and helping to ensure virtual hearings run smoothly,” he added.

The FDRS provided virtual hands-on training, conducted practice sessions with arbitrators and parties, and created resources for arbitrators including an Arbitrator Resource Guide for Virtual Hearings and four Zoom instructional videos, according to Berry.

An FDRS case administrator serves as the host throughout the Zoom hearings “so arbitrators can concentrate on the case” instead of the Zoom technology, Berry says.

Sam Edwards, president of the Public Investors Advocate Bar Association, said in a LinkedIn comment in response to a post by Beck Redden lawyer Troy Ford earlier this year that his first Zoom hearing “worked really well.”

“The ability to really control the evidence presented and to call witnesses from all over the country make it something I can see actually preferring to an in-person arbitration once we all get a little better at it,” Edwards said at the time.

The Zoom arbitration hearings need “different types” of preparations than in-person hearings, Beverly Jo Slaughter, senior managing counsel on the wealth investment management litigation team of Wells Fargo, said in September during a conference panel about the pandemic’s impact on Finra arbitration.

Such preparations include telling people how to position their laptops or look at the camera, getting them comfortable with the setup and preparing PDFs of documents in advance for screen sharing during the hearing, she noted.

But the Zoom hearings have worked out well, according to Slaughter.

“Everybody was active and engaged,” she said. “I have been trying to get my team that I lead in Wells Fargo to do more of these.”

Case statistics

The average turnaround time of overall Finra arbitration cases in the first nine months of 2020 was 14.9 months, longer than the 14.1 months in the same period in 2019.

Berry attributes the longer turnaround time of overall cases in part to pandemic-related delays in terms of parties settling — with multiple administrative postponements causing delay, then a decision to settle months thereafter.

But the FDRS has been moving cases with hearings “very quickly,” Berry says, noting that this year’s turnaround time is faster than last year. The average turnaround time of Finra arbitration cases with regular hearing decisions in the first nine months of 2020 was 14.2 months, shorter than the 17.4 months in the same period in 2019.

Berry credits having nearly all virtual arbitration hearings in 2020 and the all-digital case files of FDRS — which went paperless when Berry took over in 2014 — for the faster turnaround of cases with hearings this year.

FDRS has been able to speed up processes within its control, as everything is sent and received via a portal, according to Berry. These include serving claims, sending lists for arbitrator list selection, appointing arbitrators to the case based on the list selection results, serving awards “as quickly or quicker than before,” he says.

The number of cases within the broker-dealer industry, meanwhile, increased in the first nine months of 2020 compared with the same period last year, while there were fewer customer cases. Berry attributes that to a new rule that increased the minimum filing fees for requests for expungement of customer dispute information, effective September 14.

“There were a lot of expungement cases filed before the rule went into effect, which accounts for the increase in industry cases. As expected, once the rule went into effect on September 14, the number of expungement cases filed decreased,” he says.

Meanwhile, Berry notes that Finra expanded its low-cost mediation program this year. Effective November 1, Finra expanded its Mediation Program for Small Arbitration Claims by increasing the amount in controversy to range from $50,000 to $100,000 and making available all virtual platforms — telephonic and video — for these mediations.

“With these changes, the program is able to provide more parties the benefit of an expedient and cost-effective option for resolving small claims while also introducing parties to qualified, but underutilized diverse mediators on our roster,” Berry says. “We are always looking for additional ways we can continually improve to provide dispute resolution services.”

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