SEC Off-Channel Communications Settlements: SRO Collateral Consequences

Features

• SEC Off-Channel Communications Settlements: SRO Collateral Consequences 
  FINRA will consult with other self-regulatory organizations and the SEC to modify the collateral consequences for member firms that reached settlements with the SEC prior to this year over certain record-keeping violations involving the use of off-channel communications, FINRA President and CEO Robert Cook and Executive Vice President of Member Supervision Greg Ruppert announced in a blog on May 8. 
  
  From 2021 to 2024, the SEC brought enforcement actions against numerous FINRA member firms for recordkeeping violations involving off-channel communications and settled them on substantially similar terms. In January 2025, the SEC brought additional actions against other member firms for similar record-keeping violations but settled these on significantly less burdensome terms. A group of firms settling before 2025 petitioned the SEC to modify their settlements to align with the January firm settlements. The SEC recently denied this petition. 
  
  “Although FINRA had no input into the terms of the 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 Ruppert wrote. “The underlying facts and violations between the pre-2025 settling firms and the 2025 settling firms are very similar, suggesting that as a matter of fairness and consistency these firms should be subject to similar ongoing SRO requirements.” 
   
• FINRA Kicks Off Annual Conference 
  FINRA began its annual conference in Washington, DC on Tuesday. In welcome remarks, FINRA President and CEO Robert Cook framed the conversation around FINRA Forward—a series of strategic initiatives to modernize FINRA regulations by undertaking a broad review of the rulebook and eliminating unnecessary burdens, empowering member firm compliance, and expanding FINRA’s tools to help protect firms from cyber threats  and fraud. “This industry is all about change, constant change. Firms are changing, markets are changing, investors are changing, so we have to change as well,” Cook said. “We’re taking this moment to surge again and redirect our energy toward being the best self-regulatory organization we can be.” 
   
• ICYMI: FINRA Extends Comment Periods for Rule Modernization Notices 
  In response to feedback from FINRA members and advisory committees, FINRA has extended the comment period for each of the following Notices by 30 days:
  • The comment period for Regulatory Notice 25-04 on modernizing FINRA rules now expires on June 11.
  • The comment period for Regulatory Notice 25-06 on promoting capital formation now expires on June 18.
  • The comment period for Regulatory Notice 25-07 on supporting modern firm workplaces now expires on July 14. 
     
• ICYMI: FINRA Statement on Outside Activities Proposal 
  FINRA issued a statement on May 5 about FINRA’s outside activities proposal, which is detailed in Regulatory Notice 25-05. The proposed rule, published for comment on March 14, would streamline and reduce unnecessary burdens regarding existing requirements addressing outside activities of broker-dealers’ associated persons. FINRA’s statement affirms that, contrary to mischaracterizations made in certain media reports, the proposal 1. contains no new reporting and approval requirements, 2. makes clear that personal investments in non-securities are excluded from reporting and approval requirements, 3. does not impose on broker-dealers new obligations regarding outside unaffiliated investment adviser activities, and 4. eliminates broker-dealers’ obligations regarding activities conducted at an affiliate (e.g., an investment adviser, insurance or bank affiliate). 
   
• ICYMI: New Blog and Podcast on Managing Third-Party Vendor Risk 
  Greg Ruppert, FINRA’s Executive Vice President of Member Supervision, published a blog on May 6 detailing how FINRA is helping member firms mitigate the risks of third-party vendors. As the blog discusses, FINRA proactively shares information about third-party vendors with member firms in order to flag potential issues when they arise. Ruppert notes several instances when this targeted outreach has provided timely alerts and guidance to member firms. 
  
  FINRA is working to strengthen this intelligence sharing as part of FINRA Forward, a series of initiatives in support of members, markets and investors. Ruppert highlights these efforts in the latest episode of the FINRA Unscripted podcast, “Vendor Vigilance: Navigating Third-Party Risk.” He also offers insights on why firms are facing heightened challenges with third-party vendors as well as the emerging risks posed by fourth-party relationships.

• No new guidance, upcoming deadlines, or effective dates have been announced since the last edition of the Weekly Update.