FINRA to Toughen Sanctions on Repeat Violators
The revised Sanction Guidelines also tell adjudicators to consider arbitration actions filed by clients against a broker.
The Financial Industry Regulatory Authority is revising its Sanction Guidelines to instruct adjudicators in the disciplinary process to consider “customer-initiated arbitrations” that result in adverse arbitration awards or settlements when assessing sanctions.
The broker-dealer self-regulator also advises adjudicators in Regulatory Notice 18-17 to impose “progressively escalating sanctions” on repeat violators to deter future misconduct.
As it stands now, FINRA’s Sanction Guidelines instruct that a respondent’s disciplinary history should trigger higher sanctions when that disciplinary history: (a) is similar to the misconduct in the current disciplinary case; or (b) evidences a “reckless disregard for regulatory requirements, investor protection, or market integrity.”
The newly revised guidelines adds a section instructing adjudicators to consider “customer-initiated arbitrations that result in adverse arbitration awards or settlements when evaluating an individual respondent’s background.”
The revisions replace the term “disciplinary history” with “disciplinary and arbitration history,” which is defined as: “disciplinary history by regulators, and arbitration awards and arbitration settlements resulting from disputes between a customer and the respondent, including those when the respondent is the subject of an arbitration claim that only names a FINRA member firm.”
When a respondent’s disciplinary history, and history of arbitration awards and arbitration settlements together with the violation found in a disciplinary case, “form a pattern, the Sanction Guidelines advise that adjudicators should consider imposing more stringent sanctions.”
The Sanction Guideline revisions take effect for all complaints filed in FINRA’s disciplinary system beginning on June 1.
Jon Henschen, head of broker-dealer recruiting firm Henschen & Associates, told ThinkAdvisor after reviewing the revised guidelines that “for those [brokers] with patterns of harming clients, I have no problem with harsher actions, but when it is tied to breach of company policies and areas that are not involving clients, that is when I can have issues with regulators treating advisors more harshly.”