FINRA's effort to broadly redefine its public arbitrator category marks a major shift for the Wall Street watchdog, which has long grappled with controversy over the issue.

Until 2011, FINRA required arbitration panels to include one non-public arbitrator, but has since changed its rules to let investors choose a panel of all public arbitrators.

In 2013, the regulator excluded people who were associated with hedge funds and mutual funds from being on the public arbitrator roster. FINRA also beefed up its policing of arbitrators last year to detect possible criminal conduct and conflicts, among other issues.

Brokerage industry lawyers have defended arbitrators with industry experience, arguing they have a better understanding of complex financial instruments and industry practices.

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