Financial Advisor IQ (February 11, 2020) - Finra says it has filed a proposed rule change with the SEC aimed at tackling the issue of unpaid arbitration awards.
The proposal would amend rules on Finra’s Membership Application Program, according to a rule filing published by the industry’s self-regulator.
Under the proposal the regulator would deny new membership to any applicant or associated person subject to pending arbitration claims, while permitting the applicant to go forward with the application if they can demonstrate the ability to pay the award, the regulator says.
The amendment would require members who otherwise aren’t required to apply for continuing membership — for actions such as a change in ownership or control — to nonetheless “seek a materiality consultation” if they have any unpaid arbitration claims or arbitration settlements, according to the rule filing.
New membership applicants would have to notify Finra promptly of any unpaid awards while the regulator is reviewing their application, Finra says.
Finra says 69% of arbitrations end up getting settled, 18% result in awards, and only 2% of the awards end up unpaid. However, a 2018 report by the Public Investors Arbitration Bar Association found that almost 36% of investors awarded monetary compensation by Finra in 2017 never received any repayment.