A hotly debated rule change that the Financial Industry Regulatory Authority Inc. has proposed to the Securities and Exchange Commission could allow arbitrators to direct cases to Finra's enforcement division before the case has closed.
Currently, arbitrators must wait until the case has concluded before they can report concerns to Finra's Department of Enforcement, which is responsible for suspending, sanctioning or taking other disciplinary action against firms and individuals.
But Finra said that making arbitrators wait could delay the ability to take action against a bad actor or hamper its ability to collect evidence.
“Finra is concerned that the current rule's requirement that arbitrators in all instances must wait until a case is concluded before making a referral could hamper Finra's efforts to uncover threats to investors as early as possible,” according to the proposed rule change. “Finra is proposing, therefore, to broaden the arbitrators' authority under the Codes to make referrals during the hearing phase of an arbitration in those extremely rare circumstanc
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