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FINRA Intolerant of Firms Skipping Arbitration Clauses

Friday, March, 18, 2016


If a firm fails to pay an arbitration award, FINRA plans to bar the firm from the industry and is in the process of seeking new rules to make the collection of awards easier for investors who can prove they are deserving.

 

Testimony regarding recent events related to unpaid awards took place before the Senate Committee on Banking, Housing and Urban Affairs recently. At the hearing, FINRA’s CEO Rick Ketchum explained his strict stands on firms that fail to pay their awards. According to Ketchum, “… unless they leave and become a registered investment advisor, we will bar them if they don’t pay their awards. Plain and simple as that. No one can stay in as a FINRA member and not pay their arbitration awards.”

 

One senator questioned whether self-regulation is the best option and used two recent studies to support the point. The studies showed brokers and firms put consumers at risk when arbitration awards are unpaid. It also showed data that one out of every 13 FINRA advisors has a history of misconduct and that more than $60 million in awards from 2013 remain unpaid. The senator also mentioned concern for FINRA’s ability look out for people instead of firms.

 

Ketchum assured the senator and others at the hearing that FINRA was reviewing the issues and that many of the firms involved with unpaid awards are no longer FINRA members – which mean there is nothing the regulator can do about the awards. He pointed out this is one of FINRA’s biggest concerns – that firms will become insolvent and leave, which means there is nothing that can be done about the unpaid awards.