If you have filed a CMA with FINRA and are being asked for an “Arbitration Plan,” it is important that you develop a comprehensive document that will stand up to scrutiny by regulators. Requests for a FINRA CMA Arbitration Plan usually happen when a broker-dealer is selling its assets. An asset transfer may include the transfer of customer accounts and representatives. More specifically, under FINRA Rule 1017(a)(3), FINRA requires that its members file a CMA when engaging in, “direct or indirect acquisitions or transfers of 25% or more in the aggregate of the member’s assets or any asset, business or line of operations that generates revenues comprising 25% or more in the aggregate of the member’s earnings measured on a rolling 36-month basis, unless both the seller and acquirer are members of the New York Stock Exchange, Inc.”
The reason behind this is that FINRA wants to ensure that broker-dealers are not attempting to avoid liabilities by selling assets and directing the proceeds to owners or officers. One of the reports FINRA requires in these applications is called a FINRA CMA Arbitration Plan. This plan must contain information that FINRA specifies about current arbitration claims outstanding against a broker-dealer. FINRA will require that the broker-dealer proposing the sale provide legal and financial information on the Arbitration Plan which are sufficient to show how the member will satisfy current and future claims, and particularly customer-related claims. This is especially true if the broker-dealer is receiving a sum of money in exchange for the assets or business lines. In some cases, there is no sum of money being exchanged, but FINRA will still want to understand how the firm will satisfy outstanding claims.
A well-prepared FINRA CMA Arbitration Plan can help gain quick approval of your FINRA asset-transfer CMA. If you require assistance with any CMA or NMA related issue, contact a FINRA CMA expert.
Update: While FINRA typically requires a CMA filing to expand business beyond certain thresholds, FINRA has amended its membership application rules to require that if a member is contemplating any acquisition (even under the 25% outlined in Rule 1017(a)(3)) and the transferring member or an associated person of the transferring member has a “covered pending arbitration claim” an unpaid arbitration award or settlement, the member must file a materiality consultation prior to proceeding, even if under the 25% threshold that exists in Rule 1017(a)(3). The arbitration plan is likely something FINRA will want to review as part of this process. See FINRA Notice 20-15 for details.
Contact Mitch Atkins, FINRA’s former Senior Vice President and Regional Director and now Principal at FirstMark Regulatory Solutions. Mitch Atkins has extensive experience with the FINRA CMA process and broker-dealer asset transfers. Contact FirstMark Regulatory Solutions at 561-948-6511.
