NASAA targets brokers that shirk arbitration awards, fines

With millions in arbitration rulings against U.S. broker-dealers going unpaid, the North American Securities Administrators Association (NASAA) is proposing rules designed to help enforce unpaid arbitration awards and regulatory fines.

NASAA proposed model rules that aim to provide regulators with tools to combat the problem of unpaid arbitration awards and fines by making it a regulatory violation to fail to pay an award or fine, providing a basis for additional enforcement action.

“This proposal seeks comment on a model rule that would require financial professionals to meet their regulatory obligations including payment of arbitration awards, and sanction those applicants or registrants who fail to fulfill those obligations,” said Melanie Senter Lubin, president of NASAA and Maryland Securities Commissioner, in a release.

The proposal follows a report last week from the Public Investors Advocate Bar Association (PIABA) in the U.S., which found that nearly 30% of arbitration awards against broker-dealers went unpaid in 2020 — up from 26.9% in 2019 — and that this represented 24% of the value of customer awards, up from 19.8% in 2019.

Th group called on regulators and policy-makers to address the issue of unpaid awards.

“If there was a goal to protect people from suffering devastating injuries, would it be best to install seatbelts before a car accident or after?” said Hugh Berkson, former president of the PIABA and co-author of its report, in a release. “Investors today have no seatbelt against unscrupulous stockbrokers, investment advisors and firms that handle hundreds of millions of customer dollars without sufficient capital reserves or liability insurance.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.