According to an article in Financial Advisor magazine, the Financial Industry Regulatory Authority (FINRA) is tightening the reins on brokers with pending arbitration awards. The regulatory body is making it harder for these brokers to jump to another firm in order to not submit payment under rules currently being proposed. Firms seeking either new or continuing FINRA membership would need to demonstrate that they have the assets to pay pending arbitration claims of any firm or individual they bring on board. FINRA will welcome comments on the proposal until April. The self regulator stated: “FINRA is concerned about new members onboarding principals and registered representatives with pending arbitration claims without the firm having to demonstrate how those claims would be paid if they go to award. In addition, FINRA is concerned about the new firm’s supervision of such individuals who may have a history of noncompliance.”
FINRA arbitration panels awarded $119 million to investors in 2016, with $14 million going unpaid. The proposed amendments would “create further incentives for the timely payment of arbitration awards by preventing an individual from switching firms, or a firm from using asset transfers or similar transactions, to avoid payment of arbitration awards while staying in business. A firm seeking new FINRA membership can only overcome the presumption of denial for pending arbitrations if they have the assets to satisfy the pending claims. These can include an escrow agreement, insurance coverage, a clearing deposit, a guarantee, a reserve fund or the retention of proceeds from an asset transfer that FINRA must deem acceptable.”
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