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FINRA Releases Updated Guidelines and Sanctions for Securities Rule Violations

On Sept. 29, 2022, the Financial Industry Regulatory Authority (FINRA) released Regulatory Notice 22-20, alerting members to changes to the Sanctions Guidelines (Guidelines), effective immediately. The notice discusses changes varying from new fine ranges/minimums, additional guidelines, and non-monetary sanctions.

What are the Sanctions Guidelines?

The National Adjudicatory Council (NAC) developed the FINRA Sanctions Guidelines to assist various adjudicators in determining appropriate sanctions for securities rule violations. They are published to allow member firms and their associated persons to be informed of typical securities rule violations, along with the related ranges and types of disciplinary actions. The Guidelines also aid in disciplinary settlements. Though ranges for fines are included, adjudicators may still impose sanctions outside the recommended ranges and are free to consider factors other than what are included in the Guidelines.

New Guidance

The Sanctions Guidelines now differentiate between types of respondents along with the following changes:

  • Creates two new subsets of fine ranges. One subset has guidelines applicable only to individuals while the other is applicable to firms. The subset for firms is broken down further based on firm size (small, mid-size, and large), using the definitions for these sizes found in FINRA’s by-laws.
  • Updates fine ranges to incorporate large fine amounts. For mid-size and large firms, the Guidelines remove the upper limit of the fine ranges pertaining to nine of the most serious violations FINRA pursues. These violations include Sales of Unregistered Securities; Failure to Respond or Failure to Respond Truthfully to Requests Made Pursuant to FINRA Rule 8210; Best Execution; Marking the Open or Marking the Close; Churning, Excessive Trading, or Switching; Fraud, Misrepresentations or Material Omissions of Fact; Excessive Markups/Markdowns and Excessive Commissions; Research Analysts and Research Reports; and Systemic Supervisory Failures.
  • New anti-money laundering (AML) guidelines. The Guidelines add six anti-money laundering (AML) guidelines, including three for firms and the remaining for individuals. The guidelines now have no upper limit for fine ranges for mid-size and large firms for AML violations involving the failure to reasonably monitor to report suspicious transactions.
  • The Guidelines introduce a single fine range for actions in the Quality of Market guidelines and other select guidelines to align with the format in other guidelines and restructure or reword seven guidelines for improved clarity and usability. The applicable guidelines are as follows:
    • Cheating, Using an Impostor, or Violating the Rules of Conduct in Qualification Examinations or in the Firm Element or Regulatory Element of Continuing Education
    • Forgery, Unauthorized Use of Signatures, or Falsification of Records
    • Research Analysts and Research Reports—Relationships, Information Barriers, and Potential Conflicts
    • Research Analysts and Research Reports—Research Report Disclosure Requirements
    • Research Analysts and Research Reports—Restrictions on Personal Trading
    • Communications With the Public—Failure to Comply with Approval, Review, Recordkeeping, and Filing Requirements
    • Communications With the Public—Failure to Comply with Content Standards
  • New non-monetary sanctions. The revisions add non-monetary sanctions for adjudicators to consider, such as suspending or barring a firm from engaging in particular business lines/activities. Many of the guidelines now explicitly instruct adjudicators to consider these types of sanctions over monetary ones. Adjudicators may also consider limiting firm business lines or products offered and suspending firms from opening new customer accounts, along with additional firm requirements. The additional requirements include heightened supervision, retaining an independent consultant to design/implement procedures for improved regulatory compliance, certifications to FINRA for updated procedures or completed tasks, instituting tape-recording procedures, and obtaining “no objection” letters from FINRA staff for proposed communications with the public prior to dissemination.
  • Increased minimum fine for small firms. The lowest fine for small firms is now $5,000 for all guidelines.
  • Finally, the Guidelines delete 20 prior guidelines. Though the deleted guidelines were either incorporated elsewhere or deleted altogether, members should note that enforcement may still occur under the underlying rules.

* Special thanks to Leisel O. Greig for her valuable contributions to this GT Alert.