The Public Investors Advocate Bar Association on Thursday “strongly criticized” the Financial Industry Regulatory Authority board’s decision to use excess income to issue rebates of its members’ fees instead of handing it over to investors whose arbitration awards remain unpaid.
On July 1, Finra said it was issuing $50 million in rebates to its member firms, based on “better-than-expected” 2024 earnings as well as projections for coming years.
The firms would receive the rebate in the form of the full annual minimum fee of $1,200, “with the remainder allocated proportionally based on each firm’s other 2024 regulatory fees,” Board Chair and Large Firm Governor Scott Curtis, along with President and Chief Executive Officer Robert Cook, wrote in a blog post.
“This allocation method is consistent with FINRA’s approach in prior discretionary rebates to member firms,” they wrote.
At the self-regulator’s annual conference in May, when Cook said that the Finra Board of Governors had approved the rebates, he also said that the watchdog in some years opted to keep overages to defer future fee increases.
According to Piaba, the $50 million should have instead gone to investors who have won Finra arbitration awards but never received the money, which the advocacy group, citing a 2021 report, said happens 30% of the time.
Adam Gana, president of Piaba and managing partner of law firm Gana Weinstein, said in Thursday’s Piaba statement that the unpaid-awards problem is “unacceptable” and “not the way to promote Finra’s mission of protecting investors and promoting market integrity.”
A Finra spokesperson did not respond to a request for comment by the publication deadline.
Gana also alluded to broader issues at the industry watchdog regarding changes to the arbitration process.
“We are seeing multiple red flags indicating that Finra is setting a dangerous new course that will ultimately hurt investors and markets,” he said. “Between flouting the unpaid arbitration award problem, to the fly-by-night rule changes shrinking the arbitrator pool, to pushing supervisory short-cuts like remote inspections, Piaba is very concerned.”