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FINRA’s National Adjudicatory Counsel Amends Sanction Guidelines

On Behalf of | May 20, 2015 | Financial News, FINRA Compliance

On May 12, 2015, FINRA announced that the National Adjudicatory Council (“NAC”) had revised FINRA’s Sanction Guidelines, incorporating several amendments and revisions toughening recommended sanctions for unsuitable or fraudulent conduct.

FINRA publishes the Sanction Guidelines so that member firms, associated persons, and counsel can become familiar with the types of disciplinary sanctions applicable to various violations. Importantly, the guidelines provide direction and guidance for adjudicators imposing the sanctions in disciplinary proceedings. The Sanction Guidelines act as guidance and do not provide predetermined or fixed sanctions for particular violations.

NAC initiates periodic reviews of the Sanction Guidelines to ensure that the guidelines reflect recent developments, comport with changes in FINRA’s rules, and accurately reflect the levels of sanctions imposed in FINRA disciplinary proceedings. The NAC’s recent amendments are the result of NAC’s inquiry into whether sanctions imposed in disciplinary proceedings achieve deterrence from further violations and reflect current sanction trends in both settled and litigated cases. The amendments, summarized in Regulatory Notice 15-15, reflect FINRA’s policy of imposing escalated sanctions on member firms and associated persons whom engage in misconduct or evidence reckless disregard for regulatory requirements. The new amendments include:

-Revisions to Sanction Guideline Related to Fraud, Misrepresentations or Material Omissions of Fact

  • For intentional or reckless fraud by individuals, the amendments change the guidance from individuals should be “considered” for a bar, to adjudicators should “strongly consider” a bar (in egregious cases). A similar amendment was made to the guidance concerning intentional or reckless fraud by firms. In the alternative, if a bar is deemed excessive, the revised guidelines provide for the suspension of an individual for 31 days to two years.

– Revisions to Sanction Guideline related to Suitability – Unsuitable Recommendations

  • For associated persons who violate FINRA’s suitability rule (FINRA Rule 2111), the range of the suspension has increased from one year to two years. Further, adjudicators are advised to strongly consider barring an individual respondent where aggravating factors predominate. In the case of firms (in egregious cases) adjudicators are “to strongly consider” suspension from any or all activities for longer than 90 days or even ordering expulsion.

– Revisions to General Principals

  • NAC revised the Sanction Guidelines’ General Principles, emphasizing that the FINRA disciplinary system is designed to protect investors, deter misconduct, and uphold high standards of business conduct.

– Indexing of Monetary Sanctions

  • The Sanction Guidelines “will implement indexing of the high-end of the monetary sanctions for each sanction guideline to the Consumer Price Index.” RN 15-15.