Finra advances proposals to crack down on 'high-risk' brokers, unpaid arbitration awards

Regulatory board moves to toughen penalties for advisers with certain past infractions and those who welch on payments owed to investors

May 11, 2017 @ 2:36 pm

By Mark Schoeff Jr.

The Finra board moved Wednesday to strengthen sanctions against brokers with disciplinary histories and the firms that hire them, and to increase disclosures from brokers and firms that fail to pay arbitration awards.

The Financial Industry Regulatory Authority Inc. advanced proposals that would allow tougher penalties for brokers with certain past infractions, enable disciplinary hearing panels to restrict the activities of brokers and firms while a case is on appeal, and require firms to strengthen supervision while a "disqualification request" is under review or a broker is appealing a hearing decision.

Another proposal would require firms to disclose on BrokerCheck, a database containing broker and firm profiles, if their brokers' customer conversations must be taped because the firm employs a large percentage of brokers from formerly disciplined firms.

Regulatory notices seeking comments on these proposals will be released in coming weeks.

Dealing with recidivist brokers has been an ongoing challenge for Finra.

"These actions will build on Finra's extensive existing programs to address high-risk brokers and reflect our commitment to protect investors and promote public confidence in securities firms and markets," Finra president and chief executive Robert Cook said in a statement.

In addition to policies toward high-risk brokers, the Finra board authorized a proposal to give customers in arbitration proceedings greater latitude to withdraw and file in court if a brokerage or a broker "becomes inactive during a pending arbitration." It also approved amending Form U4 to gather information from brokers about times when they have welched on arbitration awards, settlements and judgments.

These steps will increase brokers' "incentives to pay awards," Mr. Cook said in a video following the board meeting Wednesday.

A study last year by the Public Investors Arbitration Bar Association found that $62 million in arbitration awards were not paid to investors in 2013, or about 25% of the total owed to investors for damages that year.

Unpaid arbitration claims also have caught the attention of Capitol Hill. Last month, Senate Democrats called on Finra to create a fund to compensate investors for unpaid arbitration claims.

Mr. Cook promised that Finra will continue to address high-risk brokers and unpaid arbitration claims.

"There's more to come in this area," he said in the video.


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