SIFMA Submits Testimony Raising Concerns with Unpaid Arbitration Legislation (S. 2499)

Washington, DC, June 28, 2018 — Today, SIFMA submitted written testimony to the Senate Committee on Banking, Housing, and Urban Affairs detailing concerns with S. 2499, which would require the Financial Industry Regulatory Authority (FINRA) to establish a relief fund to provide investors with the full value of unpaid arbitration awards issued against brokerage firms or brokers regulated by FINRA.  The testimony was submitted in conjunction with today’s hearing entitled ‘Legislative Proposals to Examine Corporate Governance.’

“We strongly support exploring reforms to reduce the number of unpaid arbitration awards,” SIFMA wrote in the testimony. “An industry-financed pool, however, is a poor public policy choice to achieve that end because it is unfair to the broker-dealers who honor their arbitration award obligations, is essentially a tax on investors, and it introduces numerous moral hazards.”

SIFMA’s testimony raised several areas of concerns with S. 2499, including:

• Using enforcement penalties to pay unpaid arbitration awards creates inappropriate conflicts of interest
• It is fundamentally unfair to require good actors who pay their arbitration awards to pay for bad actors who do not
• FINRA has already taken numerous steps to resolve the issue under its existing authority, and those efforts should be given a chance

“S. 2499 is fundamentally unfair and inappropriately places the burden of unpaid arbitration awards upon the backs of those firms who do pay their awards, and ultimately, their customers,” the testimony concluded.  “FINRA has all the authority it currently needs to reduce the number of unpaid awards and Congress is better served by fulfilling its oversight function at this time.  These proposals should be allowed to run their course — with policymakers being given a chance to evaluate their efficacy — before considering more drastic alternatives.”

SIFMA’s written testimony further outlines these views, which can be found here: https://www.sifma.org/resources/submissions/sifma-testimony-on-legislative-proposals-to-examine-corporate-governance/

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About SIFMA

SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $20 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.