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March 03, 2016 at 09:38 AM
The Financial Industry Regulatory Authority is actively assessing regulations to rein in brokerage firms that fail to pay investors monetary awards they’ve won in arbitration, the self-regulator’s chairman and CEO, Richard Ketchum, said Thursday.
Sen. Elizabeth Warren, D-Mass., challenged Ketchum during his Thursday testimony before the Senate Banking Subcommittee on Insurance, Securities and Investment to explain recently released findings of a report finding that $62.1 million of customer arbitration awards issued in 2013 were still unpaid.
The crux of the problem is that brokerage firms lack the funds to actually pay the awards, Warren said, citing the report from the Public Investors Arbitration Bar Association, a group for lawyers who represent investors in disputes with the securities industry.
According to the PIABA analysis of 2013 arbitration awards, “more than one out of three cases investors take through to an arbitration hearing and win an award assessing liability and damages goes unpaid.” Viewed differently, the PIABA study states, “nearly $1 of every $4 awarded to investors in arbitration hearings goes unpaid.”
Warren pointedly asked Ketchum, shouldn’t there “be more regulations so that people get paid?”
Ketchum responded: “Something should be done about it; I do believe that we want to work with the [Securities and Exchange Commission] on this.”
Firms that continue to do business and maintain their FINRA membership “are barred” if they don’t pay their awards, Ketchum continued. However, he said, if firms “become insolvent” or “leave FINRA, we lose our jurisdiction” over them.
While the capital requirement issue is mainly within the SEC’s purview, Ketchum said that FINRA was “looking at” whether there should be regulatory mechanisms put in place “to ensure they [firms] have enough capital” before leaving FINRA’s jurisdiction.
