Proposed model rules will help to combat unpaid arbitration awards and fines

By R. Jason Howard, J.D.

The North American Securities Administrators Association (NASAA) has announced that following approval by its board of directors, it is seeking public comment regarding proposed model rules concerning the unpaid arbitration awards and regulatory fines by state-licensed broker-dealers and agents or investment advisers and investment adviser representatives.

Proposed rule. If adopted by NASAA membership, the proposed model rules would “make it an unethical business practice for a broker-dealer, agent, investment adviser or investment adviser representative registered in a jurisdiction to fail to pay an arbitration award or fine entered against the person.” The proposed model rules will provide a basis for enforcement actions to address unpaid Financial Industry Regulatory Authority (FINRA) arbitration awards by allowing NASAA member jurisdictions to “prevent the registration of firms and individuals in any capacity if the firm or individual has an outstanding arbitration award.”

Specifically, the model rules will add the following provisions to the dishonest or unethical business practices of broker-dealers, agents, investment advisers, and investment adviser representatives:

• Failing to satisfy an arbitration award resulting from a client or customer-initiated arbitration;
• Attempting to avoid payment of any client or customer-initiated arbitration; or
• Failing to satisfy the terms of any order resulting from a regulatory action taken against the registrant.

“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, NASAA President and Maryland Securities Commissioner. “I wish to thank the members of NASAA’s Broker-Dealer Section Committee for their work in developing this rule proposal for comment.”

The NASAA website has instructions on how to submit comments. The deadline for public comment is November 4, 2021. After the deadline, the proposed rules may be presented to NASAA members for approval and adoption as either new rules or regulations.