The Financial Industry Regulatory Authority has sent a rule proposal to the Securities and Exchange Commission to allow investors to move arbitration cases to court if the brokerage firms become “inactive” or bankrupt.
FINRA’s plan is intended to address the growing problem of unpaid arbitration awards.
The SEC is requesting comments on FINRA’s plan until Dec. 13.
FINRA’s plan would amend the broker-dealer regulator’s Code of Arbitration Procedure for Customer Disputes to expand a customer’s options to withdraw an arbitration claim if a member or an associated person becomes inactive before a claim is filed or during a pending arbitration.
The proposed amendments would also allow customers to amend pleadings, postpone hearings, request default proceedings and receive a refund of filing fees in these situations.
Richard Berry, FINRA’s executive vice president and director of dispute resolution, said late last year that unpaid awards represent “about 2% of the nearly 13,000 customer cases closed between 2012 and 2016.”