As part of its mission to regulate broker-dealers and their employees, the Financial Industry Regulatory Authority (FINRA) is now proposing a new rule to target what they are calling “restricted firms” and “high risk brokers.” The proposed rule comes after studies found that some firms persistently hire brokers who engage in misconduct, thereby concentrating misconduct at those firms.
With plans for imposing added obligations upon brokerage firms that employ these “rogue brokers” with a history of misconduct recidivism, the rule is a step in the right direction but falls short in terms of addressing unpaid arbitration awards.
A persistent problem in the financial industry, unpaid awards from shuttered firms account for tens of millions of dollars in losses each year. For many wronged investors, the latest FINRA proposal would only be a drop in the bucket. As part of the rule proposal, FINRA is beginning to address the problem of unpaid awards. The regulator has said it will look at whether a firm has any pending arbitration claims involving customers, or any unpaid awards when determining the amount the firm must deposit into its restricted fund. Funds from this pool can then be used to pay customer arbitration awards. While it is a positive step by FINRA to address the unpaid arbitration award problem, it is unlikely that the fund will be large enough to make a significant dent in the multi-million-dollar-a-year problem.
On Wednesday, May 15, 2019, FINRA CEO and President Robert Cook discussed elements of the recently proposed rule at the organization’s annual conference in D.C.
Here are a few key details about the rule:
As FINRA works on shaping its new proposed rule, our legal team at Meyer Wilson will continue to do our part in helping wronged investors explore their available options for recovering financial losses. We are committed to helping those wronged investors fight for the recoveries to which they’re entitled.