The Financial Industry Regulatory Authority will consult with the Securities and Exchange Commission to modify firms' settlement terms related to off-channel communications violations, according to Robert Cook, FINRA's CEO.
Between 2023 and 2024, the SEC issued 16 separate orders against financial firms — including Ameriprise Financial, LPL Financial, Raymond James and Osaic — for violations related to employees using personal devices for business communications.
The firms sought to modify the terms of their orders to match those firms that settled in January 2025, saying those firms received more favorable settlement terms. The SEC denied the firms' request in mid-April.
The firms asked to replace a two-year compliance consultant process with a one-time audit, remove requirements to report employee discipline, and eliminate heightened supervision by FINRA.
SEC Commissioner Hester Peirce dissented on the SEC's decision, stating that the firms were being unfairly treated compared with later settlements and that the agency should have modified the orders.
In all, 77 firms settled with the SEC from 2021 through 2024.
"Although FINRA had no input into the terms of the [off-channel communications] OCC settlements between the firms and the SEC, the pre-2025 settlements ordered undertakings that triggered collateral consequences for the firms with respect to their membership in FINRA and other self-regulatory organizations (SROs)," Cook and Greg Ruppert, executive vice president and Head of Member Supervision at FINRA, said in a blog post.
"FINRA will consult with the SEC and other SROs to modify these collateral consequences, consistent with investor protection considerations," Cook and Ruppert said.
'Complicated' Settlement Terms
The details of the firms' settlement orders "are complicated, but generally speaking, each firm became 'statutorily disqualified' under the Exchange Act and was obligated to apply for 'membership continuance' with FINRA," Cook and Ruppert explained, which includes filing a membership continuance application with FINRA and agreeing to a “heightened supervision plan” relating to the violations that resulted in the disqualification.
FINRA must also file a notice with the SEC regarding its intention to allow the firm to remain a member.
Cook and Ruppert note that if the SEC had granted the petition "to modify the pre-2025 settlements and put all firms in a similar position, FINRA was prepared to work with the pre-2025 settling firms to terminate their HSPs, since the underlying requirement triggering the need for them would no longer exist."
Following the SEC’s decision, "FINRA believes it would be appropriate to modify the existing HSPs for firms that settled pre-2025 with the various SEC undertakings," Cook and Ruppert continued, adding that "these modifications would focus the HSPs on requiring the firms to complete these undertakings and share with FINRA their certifications to the SEC confirming that they have done so."
Any changes to the HSPs "will not put the pre-2025 settling firms in the same position as firms settling in 2025. FINRA cannot do that because of the differences built into the SEC settlements," Cook and Ruppert said. "In addition, under applicable rules FINRA cannot eliminate the HSPs altogether for the pre-2025 settling firms."
However, the two said: "There are several reasons why it would be appropriate in the special situation presented here — and consistent with the public interest and investor protection — to modify the HSPs in a manner that would bring the two sets of firms closer in line in terms of their ongoing obligations as SRO members."
FINRA staff "is working on standardized amendments to these HSPs that would apply to all pre-2025 settling firms consistently," Cook and Ruppert state.
As part of this process, "FINRA will consult as necessary with other relevant SROs, as well as with the SEC, which reviewed the existing HSPs as part of the notices FINRA filed with the SEC regarding FINRA’s (and other SROs’) intention to permit the firms to remain members," the two state. "FINRA will engage directly with impacted member firms regarding changes to their HSPs."
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