FINRA studying 'errors and omissions' insurance

October 5
1:20 PM 2013

The US Financial Industry Regulatory Authority is contemplating the imposition of a requirement wherein brokerage firms would need to carry insurance to cover payment of arbitration awards to investors. The news first broke on the Wall Street Journal.

FINRA is an industry funded watchdog and it is considering if brokerages should be mandated to have what is termed as 'errors and ommissions' insurance. This covers legal claims according to FINRA Executive Vice President for Regulatory Operations Susan Axelrod, as confirmed with the paper.

With the insurance in place, this can help in the reduction of the number of brokerage firms which had shut down without payment of aawards and other claims as against investors. According to FINRA, nearly USD51 million in arbitration awards granted in 2011 remain unpaid. This accounts for 11% of total awards, which is an increase from 2009 and 2010 according to the news report.

A Securities and Exchange Commission spokesperson said net capital rules put guidelines in place to ensure brokerage firms do return investor funds should the firm fail. The SEC overseeas FINRA.

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