Proposed FINRA Arbitration Award Fund

Unpaid arbitration awards are a major problem. Earlier this year, FINRA released a report showing that unpaid arbitration awards ranged from $75 million in 2013 to $14 million in 2016. One of the proposed remedies by FINRA is to establish a pool of money for the unpaid awards.

There is now bipartisan backing to address this problem. Sen. Elizabeth Warren, D-Mass. and Sen. John Kennedy, R-LA have co-sponsored a bill that would require the Financial Industry Regulatory Authority to create a fund financed by FINRA fine money to cover awards that firms and brokers fail to pay customers who win arbitration claims.

“This bill aims to compensate Americans who have been cheated out of hundreds of millions of dollars,” Sen. Kennedy said in a May 15 statement. “These investors have already been swindled out of their money once, and thousands of them still haven’t been given their unpaid arbitration. Our bill aims to fix that.”

FINRA is not taking a position on this bill. Mr. Stoltmann, President of the Public Investors Arbitration Bar Association believes that Republican support elevates the topic of unpaid awards. “It’s now become a bipartisan issue,” Mr. Stoltmann said.

Some fear the bill may give companies an out from paying their fair share. Tom Quaadman, Executive Vice President for U.S. Chamber of Commerce Center for Capital Markets Competitiveness said “More troubling, the legislation would empower bad actors by ensuring them there is a backstop in place – paid for by somebody else – to compensate investors they have cheated.”

According to Mr. Burton, a senior fellow in economic policy at the Conservative Heritage Foundation, the amount of fines FINRA assessed would easily cover the unpaid arbitration awards.

The bill is beginning to appeal to both Democrats and Republicans. As of right now a companion House bill hasn’t been introduced. Only time will tell what the final decision will be. FINRA has acknowledged the issue and is open to collaborating with financial regulators on the problem.

2018-09-28T14:58:52-04:00September 28th, 2018|Arbitration, FINRA|