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

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.

Latest News

Retirement delays, Social Security fears prompt advisors to rethink income strategies
Retirement delays, Social Security fears prompt advisors to rethink income strategies

Concerns about outliving savings and healthcare costs are reshaping how "Peak 65" Americans and advisors approach income planning.

Merrill Lynch on the hook for $3.7M after clients claimed sale of unsuitable private equity
Merrill Lynch on the hook for $3.7M after clients claimed sale of unsuitable private equity

Some investors recently have seen million dollar plus decisions by FINRA arbitration panels involving complex products decisions go their way.

Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler
Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler

Former advisor Isaiah Williams allegedly used the stolen funds from ex-Dolphins defensive safety Reshad Jones for numerous personal expenses, according to police and court records.

RIA moves: Modern Wealth tops $8.5B AUM as Aspen expands in Connecticut
RIA moves: Modern Wealth tops $8.5B AUM as Aspen expands in Connecticut

Modern Wealth's latest deal for a California-based fee-only RIA marks its fourth acquisition of 2025.

Empower defends private market access in 401(k)s in response to Warren scrutiny
Empower defends private market access in 401(k)s in response to Warren scrutiny

Sen. Warren has warned of private market investment risks due to opacity, illiquidity, and past regulatory issues.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.