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May 26, 2020 at 03:22 PM
The Financial Industry Regulatory Authority’s newly amended Membership Application Program (MAP) rules, which are designed to make it harder for brokers to switch firms without paying arbitration awards, are really “just a nibbling around the edges,” and fail to adequately protect investors from bad brokers, according to Samuel Edwards, a partner at Shepard Smith Edward & Kantas in Houston, who also serves as president of the Public Investors Advocate Bar Association.
The newly amended MAP rules, as FINRA explains in Regulatory Notice 20-15, “create further incentives for timely payment of arbitration awards by preventing an individual from switching firms, or a firm from using asset transfers or similar transactions, to avoid payment of arbitration awards.”
Edwards told ThinkAdvisor in a Tuesday phone interview that FINRA’s amended MAP rules “are a step in the right direction, but a relatively small step. What it [the amended rule] doesn’t really address: FINRA needs to flat-out kick these people out or not let them get back in.”
PIABA is a group of lawyers who represent investors in disputes with the securities industry.
What the rule “is trying to fix is to address bad brokers who are flipping in between firms and not paying awards,” Edwards said. However, “the bigger issue that’s always been somewhat something that could be stopped,” he continued, are firms that “get actions against them and can’t pay them” and then shut down.
Historically, Edwards continued, these firms have been able to “reconstitute themselves as a new firm, we’ve often seen it — same office, same address, same everything — just a new name” to avoid liability.
