Since our 2018 report, “we have continued to take measures designed to reduce the risks to investors from brokers and firms who may be less likely to pay awards. FINRA appreciates that customer recovery can be a challenge across the financial services industry and dispute resolution forums, and we remain committed to working with all stakeholders on this important issue,” Finra spokeswoman Michelle Ong said.
Sen. Elizabeth Warren (D-Mass.) introduced legislation in 2018 that would have required Finra to set up a pool funded by penalties from broker-dealers to pay unpaid final arbitration awards.
Traxler said that instead of forcing compliant firms to pay into the pool, regulators should focus on enforcement.
“Instead, those dishonest actors should be barred from engaging in the financial industry, whether that is through Finra registration, investment advisor registration or as an insurance agent. So we would instead encourage the regulators to coordinate,” she added.
On the expungement front, FSI executives said they are in discussions with Finra to streamline the process whereby brokers, reps and firms can seek to have arbitrations they are named in expunged from their public records.
“This is an example where I keep beating my constructive engagement drum. It’s unfair to advisors and not helpful to investors in a sweeping complaint filed by a plaintiff’s attorney that an advisor in a practice gets named in a complaint he had nothing to do with it,” FSI President and CEO Dale Brown said.
In May, the PIABA released a study that found that arbitrators grant expungement to industry players 90% of the time. The lawyers group says regulators and the customers who had complaints should be able to present evidence in expungement requests.
“The data show that the reason is that Finra’s arbitration process allows brokers and brokerage firms to make expungement requests to arbitrators that are unopposed the vast majority of the time,” the PIABA said in its study.
“The solution is simple,” the study continued. “To effectively prevent expungements of valid customer complaints, Finra must provide a meaningful opportunity for those with an interest in the outcome of the expungement request, e.g., securities regulators and the customers who submitted the complaints, to present evidence opposing expungement, when appropriate."
“FINRA plans to issue an Expungement Discussion Paper in the coming months and will then hold meetings with various stakeholders,” Spokeswoman Ong said.
After consulting with SEC staff, the organization temporarily withdrew from SEC consideration its filing to establish specialized arbitration panels for expungement request in order to further consider whether modification to the filing are appropriate.