The Financial Industry Regulatory Authority is reminding broker-dealers and their reps that no matter where they are located — even if outside the U.S. — they are required to provide information and testimony in response to a request from FINRA staff.
In Regulatory Notice 25-11, released on Sept. 25, FINRA states that members as well as associated persons "are required to provide information and testimony in response to a request from FINRA staff" under FINRA Rule 8210 (Provision of Information and Testimony and Inspection and Copying of Books).
The rule functions as FINRA's subpoena power and authorizes FINRA staff and adjudicators to request information from members and their associated persons for the purpose of an investigation, complaint, examination or proceeding authorized by FINRA’s by-laws or rules.
Specifically, Rule 8210(a)(1) gives FINRA staff and adjudicators the right to require a member, associated person or other person subject to FINRA’s jurisdiction “to provide information orally, in writing, or electronically (if the requested information is, or is required to be, maintained in electronic form), and to testify at a location specified by FINRA staff,” the notice states.
Eversheds Sutherland attorneys point out in a recent note, however, that Rule 8210 "does not state that FINRA’s authority extends beyond the United States" and noted that the regulator's assertion could be challenged in court.
FINRA’s position, the attorneys state, "is based on a policy argument that for FINRA to do its job, firms and individuals must provide requested information (including documents and testimony) — regardless of whether such information is outside the United States."
As FINRA explains, because the broker-dealer self-regulator "lacks subpoena power, compliance with Rule 8210 is essential for FINRA to fulfill its self-regulatory mission.”
"To enforce compliance with its requests, FINRA may sanction firms and individuals 'if they fail to respond, or do not respond truthfully or completely, to a request made pursuant to Rule 8210,'” the attorneys state.
As the notice states, many firms operate globally, with FINRA members maintaining registered persons in approximately 75 different countries, and members being "part of global corporate structures with parent companies or other affiliates located in foreign countries.”
While "some jurisdictions outside of the United States have laws that may potentially conflict with the requirements of Rule 8210 and prohibit persons from responding to information requests from overseas regulators, the notice states, "Rule 8210 does not ... provide any exception to complying with its requirements based on foreign law."
Broker-dealers operating in these areas "should anticipate that FINRA’s examination program will continue to review the member and their associated persons’ ability to comply with Rule 8210," the notice warns.
If necessary, FINRA staff "will initiate an enforcement action for failing to comply with Rule 8210 that may result in expulsion from membership or a bar from associating with a member firm," according to the notice.
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