SAC's fifth video Podcast, Arbitration in 2017 and Beyond: Making Arbitration Great Again, examined coming developments in the world of arbitration along with the future of financial regulation.
The year 2016 saw many developments in the arbitration world. The Consumer Financial Protection Bureau proposed its long-awaited arbitration rule; the Supreme Court accepted another case involving the preemptive power of the Federal Arbitration Act over state laws; several anti-arbitration bills were again introduced in Congress; the Department of Labor finalized a fiduciary rule for those offering retirement investment advice; and FINRA went to work evaluating and implementing its Dispute Resolution Task Force's 51 recommendations to improve the process. In this fast-paced Podcast, experts and practitioners in the securities dispute resolution field discussed what the future augured for arbitration in general and securities arbitration in particular. The Podcast was recorded April 5 and already some predictions have been validated, such as the Senate confirmation of Neil Gorsuch, and the SEC and DOL working together to craft a uniform fiduciary standard (see coverage elsewhere in this Alert).
Our fifth podcast's faculty consisted of Matt Farley, Drinker Biddle & Reath LLP (retired); George Friedman, George H. Friedman Consulting, LLC (NJ), Arbitration Resolution Services, Inc. (FL); Deb Masucci, International Mediation Institute (NY); and Peter Mougey, Levin Papantonio (FL), and was moderated by SAC founder and President Richard “Rick” Ryder. Including Mr. Ryder, three of the participants were former NASD/FINRA Directors of Arbitration. Using a PowerPoint to support the 50-minute Podcast, the panel in this thoughtful, in-depth, and collegial overview of the arbitration scene and its future, shared their views about the new regime in Washington and how it and other arbitration-related developments are likely to affect securities mediation and arbitration on both a national and international scale. The faculty covered five core topics. We offer below each main topic followed by a representative comment from a panelist.
Does President Trump favor arbitration?
FRIEDMAN: Yes. It’s my belief that President Trump likes arbitration, because he has used it in the past as a businessman for many years. He had arbitrations involving real estate matters in the 1980s at American Arbitration Association, when I worked there, and he continues to employ arbitration as a tool. The Indisputably.org dispute resolution blog reported that the Trump Campaign used arbitration in employment agreements, even for volunteers. Of more importance: since he was elected and took office, there’s been further evidence that he likes arbitration.
Is the anti-arbitration movement dead?
MOUGEY: I don’t want to say dead, but I think it’s on ice or life-support for the time being, at least while there’s the proverbial hat trick -- the GOP hat trick (House, Senate and Presidency). I don’t see the anti-arbitration movement getting any traction over at least the next four years. At this point, I think that, at the very least, we’ll maintain the status quo, in that we won’t see any movement made, or any progress made, towards having arbitration be just one of the choices, as opposed to mandatory.
What’s the future of Consumer Financial Protection Bureau, or at least its proposed arbitration rule? Are they long for this world?
FARLEY: I hope not! But let’s just review what CFPB is. It has a roving portfolio, over 19 different agencies and statutes all involving customers intersecting with money. It has a single director who’s not reporting to the President and it has a budget that Congress does not enact. What could possibly go wrong in a democracy? … I don’t know why Congress would want this thing out there. It’s frustration and abdication to the Nth degree. From a regulatory point of view, the PHH decision is just the first drop of the shoe. But anything the CFPB doesn’t like, it doesn’t have to defer to Congress’ statutes. The sheer arrogance….
What will happen to the Department of Labor’s fiduciary rule? The SEC’s?
FRIEDMAN: The Rule establishing the fiduciary standard rule for those who provide retirement investment advice was published about a year ago. The SEC has its own authority under Dodd-Frank to define a broker’s fiduciary role, but it has not done so yet. So, the Department of Labor went ahead with its own rules. As I said before, right now, there’s a 60-day delay built into the fiduciary rule, meaning around the time the agency must do its report to the President in June, the rule will either roll out or ... it won't.... I think we’re going to end up with a single unified rule dealing with this issue, probably under the Commission’s auspices..., because right now it’s an invitation for investor confusion.
What’s the future of financial regulation?
MASUCCI: The way I look at it, if anyone is going to break the way government is used to working, it’s going to be President Trump. I think that he’s taking a fresh look at all the government agencies, trying to reduce duplication and trying to consolidate wherever he can. His claim to fame will be a reduction in the cost of government and, looking at those costs, he’s going to try to consolidate as much as possible. And if it’s money that’s needed to regulate RIAs, I can see him making a deal with the RIAs to enforce it, to have them fall under the rubric of FINRA or another organization and let them regulate that. Keep in mind that some 20 years ago we had regulation at the New York Stock Exchange, the American Stock Exchange, and the NASD. Now, we basically have one regulator as a self-regulatory organization and I think that consolidation is going to continue.
(ed: We encourage readers to view the video Podcast for a discussion of other interesting topics, such as Justice Gorsuch’s views on arbitration and the panelists’ predictions for where things will stand after the next Presidential election in 2020.) (SAC Ref. No. 2017-22-02)
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