The consequences to a Financial Industry Regulatory Authority (FINRA) registered representative for not paying an adverse arbitration award can be career-threatening. FINRA is empowered to suspend from its association any representative who fails to pay an arbitration award until it is paid. Despite this drastic consequence, non-payment of arbitration awards is a significant on-going problem for FINRA. Thus, at its July 18, 2017 Board of Governors meeting, FINRA’s Board authorized new rules to remedy the problem. The Board approved the publication of a Regulatory Notice soliciting comment on proposed amendments to FINRA’s Membership Application Program rules to provide FINRA staff with rule-based authority to presumptively deny a new membership application if the applicant or its associated persons are subject to pending arbitration claims. In addition, the proposed amendments would require a member firm to seek a materiality consultation with FINRA if the member is not otherwise required to file a continuing membership application and the member is seeking to effect a business expansion or asset transfer and the member or an associated person has a substantial level of pending arbitration claims, an unpaid arbitration award or an unpaid settlement related to an arbitration. (As of the date of this article the Regulatory Notice detailed above has not been published.)
It can therefore be expected that not only will FINRA proceed with the rulemaking process to enhance its ability to compel members and representatives to pay arbitration awards, but also that FINRA’s enforcement division will redouble its efforts to use existing rules to suspend representatives who fail to pay arbitration awards.
