Senate Democrats push Finra to create fund to compensate investors for unpaid arbitration claims

Sen. Elizabeth Warren says investors are being taken advantage of by brokerage firms, citing a study that determined the industry failed to pay $62 million in claims in 2013

Mar 9, 2017 @ 2:21 pm

By Mark Schoeff Jr.

Senate Democrats want Finra to compensate investors who prevail in arbitration cases but are stiffed by the losing brokerage.

In a Senate Banking Committee markup of unrelated bills Thursday, Sen. Elizabeth Warren, D-Mass., offered an amendment that would direct Finra to create a fund that would cover unpaid arbitration awards. She later withdrew the measure, but she and fellow Democrats made clear they want the committee to consider legislation in the future.

She cited analyses that show that arbitration victors were unable to collect $62 million in awards in 2013, an amount that represented one quarter of all awards that year.

"We're talking about millions of dollars that rightly belong to working families," Ms. Warren said.

In a Senate Banking Committee hearing a year ago, Ms. Warren pressed then-Finra chairman and chief executive Rick Ketchum on unfulfilled arbitration awards.

"Finra has not taken any action to address this problem," she said.

Many brokers are "thinly capitalized," said Sen. Mark Warner, D-Va.

"They get into an arbitration, [then] they shut down and move," Mr. Warner said.

The most senior Democrat on the committee, Sen. Sherrod Brown, D-Ohio, also voiced support for arbitration legislation and called for a broader congressional review of the Financial Industry Regulatory Authority Inc., the broker-dealer self-regulator.

"The committee should consider additional oversight of Finra's work since they have fallen short," Mr. Brown said.

"Finra continues to be very concerned about awards to investors that go unpaid," Finra spokeswoman Nancy Condon said in a statement. "We have been taking a careful look at this issue and look forward to working with Congress to try to find a solution."

Finra runs the arbitration system that adjudicates disputes between customers and brokers as well as between brokers and financial firms.

The new chairman of the committee, Sen. Mike Crapo, R-Idaho, emphasized during Thursday's markup that he wants to work on legislation that draws bipartisan support. He told reporters after the meeting that he's not sure whether Finra reform falls into that category.

"I don't know because this is a new issue," Mr. Crapo said. "We will work to see if there can be bipartisan support. But I can't predict right now."

Mr. Crapo said that he does want to help investors obtain the money they win in arbitration cases.


What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video


What's the first thing advisers should do when they get home from a conference?

After attending a financial services conference, advisers can be overwhelmed by options, choices and tools. What's the first thing they should do when they get back to their office?

Latest news & opinion

Is Fidelity competing with retirement plan advisers?

As the Boston-based mutual fund giant expands the products and services it brings to the retirement market, some financial advisers say the firm is encroaching on their turf.

Gun violence hits investment strategies, sparks political debates with advisers

Screening out weapons companies has limited downside.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

If Finra eases firm oversight of outside business activities, broker-dealers could lose revenue

Brokerage firms would no longer be able to charge reps for supervising nonaffiliated RIAs.

Galvin charges Scottrade with DOL fiduciary rule violations

Action of Massachusetts' top regulator shows states can put teeth into a rule under review by the Trump administration.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print