RIA Compliance and Practice Management Blog

NASAA's New Model Rule Aims to Tackle Unpaid Arbitration Awards

Posted by RIA in a Box

Jun 6, 2022 3:43:40 PM

www.riainabox.comhubfsNASAA_Enforcement Cases-Dec-15-2020-09-26-16-72-PM

Recently, the North American Securities Administrators Association ("NASAA") approved a new model rule, addressing the issue of registered investments advisers ("RIA") firms or advisers with unpaid customer arbitration awards and judgments. With the passing of this rule by NASAA members, state regulators can now impose sanctions on firms and advisers who fail to promptly pay their monetary obligations to customers and regulators. 


NASAA introduced the model rule in October 2021 with a notice of request for public comment. In this request, NASAA stated the model rule would "combat the problem of unpaid arbitration awards and fines." The securities association also publicly expressed that the rule would provide further protection for investors.

The new model rule amends Rule USA 2002 502(b) Prohibited Conduct in Providing Investment Advice and Rule 102(a)(4)-1 Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers.

As part of an investment adviser's fiduciary duty, they must always act in the best interests of their clients. Therefore, the attempt to avoid payment, or failure to pay and fully satisfy final judgment or arbitration awards related to investment or client-arbitration is considered fraudulent, deceptive, or unethical conduct. The rule also includes the failure to pay any fine, civil penalty, order of restitution, order of disgorgement or similar monetary payment obligation imposed by the SEC or other securities regulators. 

Now, state regulators which adopt the rule can use enforcement actions to penalize investment advisers through measures such as marking the adviser's practice as fraudulent or prohibited, and preventing the adviser from registering in their state until the award is paid. 


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Topics: RIA Compliance

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

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