Securities Law & Corporate Counsel Blog

This May the Financial Industry Regulatory Authority (“FINRA”) made revisions to its Sanction Guidelines pertaining to misrepresentations and suitability. The Sanction Guidelines were developed for FINRA by The National Adjudicatory Council (“NAC”) to assist Hearing Panels and the NAC (collectively, the “Adjudicators”) to determine appropriate disciplinary sanctions. Periodically, the NAC reviews the Sanction Guidelines to determine whether current sanctions “are sufficient to achieve deterrence and reflect sanction trends in litigated and settled cases.”While the NAC did not cite examples of violations as an impetus for the changes, a review of the Sanction Guidelines found that current sanctions were not sufficient to achieve deterrence. Below are highlights of the NAC’s revisions to the Sanction Guidelines from FINRA’s Regulatory Notice 15-15 :

• Revisions to the Sanction Guideline Related to Fraud, Misrepresentations or Material Omissions of Fact

For reckless or intentional fraud the new Sanction Guidelines “eliminates the guidance that individuals should merely be “considered” for a bar in egregious cases. The revision states Adjudicators should “strongly consider” barring an individual”. Similar amendments were made addressing firms.

• Revisions to the Sanction Guideline Related to Suitability – Unsuitable Recommendations

The guideline was amended to “increase the high-end of the suspension from one year to two years and to “strongly consider” barring an individual respondent where aggravating factors predominate the respondent’s misconduct” for unsuitable recommendations by individuals.

• Revisions to the General Principles Applicable to All Sanction Determinations, Nos. 1 and 2

The amended General Principle No. 1 advised Adjudicators to consider imposing higher sanctions than recommended to “achieve deterrence, and not a mere cost of doing business.”  General Principle No. 2 has been amended to advise adjudicators to impose “progressively escalating sanctions” on individuals and firms with disciplinary history.These changes reflect the predominant mentality among Adjudicators that harder penalties are required to deter wrongdoing. It is strongly recommended that firms examine their Written Supervisory Procedures in light of these revisions to ensure compliance and avoid harsh penalties.For more information on this and other related subjects, please contact us at info@jackolg.com(619) 298-2880.