The Financial Industry Regulatory Authority (FINRA) amended its Membership Application Program (MAP) rules to incentivize payment of arbitration awards by preventing an individual from switching firms, or a firm from using asset transfers or similar transactions, to avoid payment of arbitration awards. The MAP rules govern the way in which FINRA reviews a new membership application and a continuing membership application; through these applications, applicants show their ability to comply with applicable securities laws and FINRA rules. To address the issue of customer recovery of unpaid arbitration awards, FINRA made the following key changes:

  • member firms must receive a materiality consultation for specified changes in ownership, control or business operations involving a covered pending arbitration claim or unpaid arbitration awards or settlements;
  • a rebuttable presumption to deny an application for new FINRA membership where the applicant or its associated person is the subject of a pending arbitration claim;
  • to overcome the rebuttable presumption, the applicant must demonstrate its ability to satisfy unpaid awards, settlements or claims, and guarantee that these funds will be used for that purpose; and
  • the applicant must notify FINRA of any arbitration claim involving the applicant or its associated persons that is filed, awarded, settled or becomes unpaid.

These changes go into effect on September 14, 2020.

The notice is available here.