The Financial Industry Regulatory Authority (Finra) in the USA is looking to clamp down on advisors that aren’t paying arbitration awards.
According to the authority’s chief Richard Ketchum, the agency is looking at the legal environment that aids advisors in avoiding these payments: and it will begin barring those who fail to comply.
The move comes as Senator Elizabeth Warren confronted the Senate Banking Subcommittee on Insurance, Securities and Investment divisions in regards to the $62.1 million that has been left on the table in the form of arbitration awards dating back to judgements made in 2013. Indeed a study by the Public Investors Arbitration Bar Association (PIABA) has found that around $1 from every $4 awarded is currently unpaid.
According to a report, Hugh Berkson, who was one of the authors of the PIABA study, revealed that the General Accounting Office put forward a number of solutions to the problem, but there had been no reaction from the advice industry. Indeed Finra is said to face an even bigger problem when companies become insolvent. From the 75 unpaid awards in 2013, 51 were meant to come from companies or individuals that are no longer part of the industry.
Berkson has suggested that the main issue is that companies just don’t have the cash needed to meet their obligations. As such, Senator Mark Warner has suggested that Finra build a reserve fund to cover these occasions – with a $100 per advisor fee helping to provide around $60 million as a “rainy day” fund.