Financial Advisor IQ (May 25, 2022) - The rule makes it unethical or dishonest to fail to pay arbitration awards or monetary penalties ordered by regulators.
The North American Securities Administrators Association says its members have approved a model rule aimed at companies and individuals who don’t pay arbitration awards or regulatory fines.
The rule, which Nasaa proposed in October, adds several provisions to what qualifies as “dishonest or unethical business practices” among investment advisors, broker-dealers, agents and investment advisor representatives, as reported.
The model rule makes it unethical or dishonest for an entity to fail to pay investment-related, customer-initiated Financial Industry Regulatory Authority arbitration awards or satisfy orders resulting from regulatory actions, such as paying fines, orders of restitution or other monetary penalties.
The rule provides for ways to avoid “licensing actions” through alternative payment arrangements, according to Nasaa.
It also serves as “an additional basis for enforcement actions,” the association said.
“This rule is another tool to help states assist in efforts to ensure victims get the compensation they deserve,” Brett Olin, vice-chair of Nasaa’s broker-dealer section committee and chief of enforcement, Nevada Securities Division, said in a statement.
Nasaa members now have the option of adopting the model rule within their own jurisdictions, according to the association.
Unpaid arbitration awards have been a focus for regulators and investor protection groups in recent years.
The Public Investors Advocate Bar Association found that 24% of the money awarded by arbitrators in 2020 remained unpaid as late as September 2021, as reported. The organization has called for the Securities and Exchange Commission to order Finra to set up a national investor recovery pool to cover unpaid Finra awards.