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July 11, 2019 at 10:07 AM
The Financial Industry Regulatory Authority released Thursday new guidance regarding credit for extraordinary cooperation, which provides further clarity on the differences between required cooperation with FINRA inquiries and extraordinary efforts to help the regulator.
The new Regulatory Notice 19-23 supplements prior guidance in Regulatory Notice 08-07 and comes in response to industry requests for further transparency, according to Susan Schroeder, head of FINRA enforcement.
Reg Notice 19-23 provides “additional information about what firms and individuals can do to earn credit for extraordinary cooperation, and what kinds of credit are available,” Schroeder said.
“We grant credit for extraordinary cooperation to incentivize firms and associated persons to voluntarily and proactively assist FINRA. Respondents who go beyond their regulatory obligations and take extraordinary steps to quickly identify and remediate misconduct materially aid FINRA in meeting its objectives of investor protection and market integrity,” Schroeder said.
Firms that exhibit extraordinary cooperation receive outcomes that are “materially different” than just exhibiting required cooperation.
The 2008 guidance noted the types of extraordinary cooperation by a firm or individual that could result in credit, and were categorized as follows: (1) self-reporting before regulators are aware of the issue; (2) extraordinary steps to correct deficient procedures and systems; (3) extraordinary remediation to customers; or (4) providing substantial assistance to FINRA’s investigation.
The broker-dealer self-regulator states that changes to FINRA’s rules since the previous 2008 guidance “may have created uncertainty around the continued impact that self-reporting may have on a potential respondent’s ability to receive credit for extraordinary cooperation.”
Also, FINRA rules and policies — such as FINRA Rule 8210, which requires members or persons associated with a member to provide information orally, in writing or electronically upon request, and FINRA’s Sanction Guidelines — require certain levels of cooperation in every case, the self-regulator explains.
FINRA states that it will continue to look to the factors set forth in both the Sanction Guidelines and Regulatory Notice 08-70 when determining whether credit will be given for extraordinary cooperation.
