(Dow Jones) Regulators have approved a change to stop brokers who have been ordered to pay an arbitration award from using an empty-pockets excuse to keep their license.

The Financial Industry Regulatory Authority submitted the rule change proposal to eliminate the so-called "inability to pay" defense in April. Brokers and brokerage companies often use the defense, which allows them to keep their securities licenses when they don't make good on arbitration awards, say lawyers.

Finra requires the payment of arbitration awards within 30 days, and uses an expedited proceeding to suspend those who don't comply.

The rule change, approved by the Securities and Exchange Commission on Wednesday, will leave in place certain other defenses, however, including a bankruptcy filing by a broker or brokerage. Additional defenses include settling for another amount or a payment schedule and challenging an award in court.

"It's a good thing," said Seth Lipner, a New York-based securities arbitration lawyer, on Friday. "If you don't pay your awards, you can't be a broker anymore. And that's an important lever on a broker or brokerage that hasn't paid."

The customer, he noted, is also often suffering financial hardship.

Some lawyers also allege that brokers and brokerages abused the rule to evade payment. Lipner said he personally wasn't involved in such cases, but is aware of other lawyers who say they encountered the problem.

Finra typically publishes a regulatory notice within 60 days of SEC approval. Effective dates for rule changes are generally between 30 to 90 days after publication of the notice.

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