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FINRA Revises the Sanction Guidelines

May 2, 2018
Volume 18

Upcoming Deadlines and Effective Dates
  • FINRA Requests for Comment
  • SEC Request for Comment

Education and Compliance Programs


Guidance on Implementing Effective Heightened Supervisory Procedures for Associated Persons With a History of Past Misconduct

Regulatory Notice 18-15 reiterates the supervisory obligations of member firms regarding associated persons with a history of past misconduct that may pose a risk to investors. The Notice highlights particular instances where heightened supervision of an associated person may be appropriate. Firms are encouraged to adopt the practices that are outlined in the Notice to strengthen their own supervisory procedures, as appropriate to their business.

FINRA Revises the Sanction Guidelines

FINRA is revising its Sanction Guidelines to instruct adjudicators in the disciplinary process to consider customer-initiated arbitrations that result in adverse arbitration awards or settlements when assessing sanctions. Thus, when a respondent’s disciplinary history, and history of arbitration awards and arbitration settlements together with the violation found in a disciplinary case, form a pattern, the Sanction Guidelines advise that adjudicators should consider imposing more stringent sanctions.

These revisions to the Sanction Guidelines take effect for all complaints filed in FINRA’s disciplinary system beginning on June 1, 2018. See Regulatory Notice 18-17.

Capital Acquisition Brokers – Written Supervisory Checklist

FINRA is providing the Capital Acquisition Broker - Written Supervisory Procedures Checklist as an optional guide to CABs to assist them in fulfilling their obligations under the CAB Rules. The checklist outlines selected key topics representative of the business activities typically engaged in by CAB members and permissible under FINRA’s CAB Rules.

Protecting Seniors From Financial Exploitation

Protecting Seniors From Financial Exploitation is an investor-focused article explaining FINRA’s rules requiring brokers to take steps to protect seniors and other specified adults against potential financial exploitation. FINRA developed this article in response to firms’ requests to help clients understand the new rules, especially the concept that firms make reasonable efforts to obtain a designated trusted contact person for specified accounts. Firms may make this article available to clients, for instance by directing them to the link on FINRA’s website or distributing a hard copy version.

 Upcoming Deadlines and Effective Dates

FINRA Requests for Comment

FINRA has four open requests for comment:

  • Regulatory Notice 18-16 seeks comment on proposed rule amendments that would impose additional restrictions on member firms that employ brokers with a history of significant past misconduct. These brokers, while relatively small in number, may present heightened risk of harm to investors, and any misconduct by them also may undermine confidence in the securities markets as a whole. The rule proposals would strengthen the existing controls FINRA has applied to such brokers to further promote investor protection and market integrity. The new proposals are one part of FINRA’s initiatives to confront high-risk brokers. Comments are due June 29, 2018.
  • FINRA is conducting a retrospective review of Rule 3110 (Supervision), governing annual compliance meetings to assess its effectiveness and efficiency. Regulatory Notice 18-14 outlines the general retrospective rule review process and seeks responses to several questions related to firms’ experiences with this specific rule. Comments are due June 25, 2018.
  • FINRA seeks comment on proposed rule amendments that would revise the quantitative suitability obligation under FINRA Rule 2111 (Suitability) to more effectively address instances of excessive trading in customers’ accounts. The proposed rule amendments would remove the element of control that currently must be proved to demonstrate a violation, but would not change the obligations to prove that the transactions were recommended and that the level of trading was excessive and unsuitable in light of the customer’s investment profile. See Regulatory Notice 18-13 for more information. Comments are due June 19, 2018.
  • FINRA is conducting a retrospective review of the rule governing carrying agreements to assess its effectiveness and efficiency. Regulatory Notice 18-10 outlines the general retrospective rule review process and seeks responses to several questions related to firms’ experiences with this specific rule. Comments are due May 23, 2018.

SEC Request for Comment

  • The SEC requests comment on FINRA’s proposal to adopt rules relating to the establishment of a second Trade Reporting Facility or ‘‘TRF’’ to be operated in conjunction with Nasdaq, Inc. The second FINRA/Nasdaq Trade Reporting Facility would provide FINRA members with another mechanism for reporting over-the-counter trades in NMS stocks and complying with FINRA’s requirements with respect to back-up trade reporting arrangements. Comments are due May 17, 2018. See the Federal Register notice.

Special Election to Fill a FINRA Large Firm Governor Vacancy
FINRA is conducting a special meeting of large firm members to elect one individual to fill a vacant Large Firm Governor seat on the FINRA Board of Governors. Eligible individuals who have not been nominated by FINRA’s Nominating Committee may be included on the ballot for the election of governors by following the petition procedures described in Election Notice 4/20/18. Petitions for candidacy are due June 4, 2018.

 Education and Compliance Programs

Only three weeks left to register for the FINRA Annual Conference (May 21 – 23, 2018). This year’s event features more than 50 sessions and over 150 speakers, including keynote addresses from FINRA President and CEO Robert Cook; The Honorable Jay Clayton, Chairman, U.S. Securities and Exchange Commission; and The Honorable Preston Rutledge, Assistant Security of Labor, Employee Benefits Security Administration, U.S. Department of Labor.

Download the updated conference brochure. Register today to attend in person or via live online broadcast.

Registration for the new FINRA Disclosure Reporting, Monitoring and Registration Conference is now open. This one-day conference is designed to bring together compliance, supervision, and registration staff from broker-dealers and third-party vendors to discuss regulatory reporting requirements and industry practices related to firm registrations, including FINRA’s Membership Application Program (MAP), individual registrations, customer complaints and disclosures. Discounted rates available for the first 50 to register through July 27.

FINRA's RAD Training will conduct a Foundations of Web CRD/IARD training May 15-16 in Rockville, MD. In-person registrants for the 2018 FINRA Annual Conference (May 21 – 23) may be interested in attending this session during their trip to the DC Metro area.

District compliance events are designed for compliance and legal professionals at FINRA member firms, and offer an opportunity to hear about current regulatory issues while engaging with District Office staff. Review the list of upcoming events being held in the Chicago, Woodbridge, New Orleans, Kansas City, Los Angeles and Boston districts.

FINRA has several Half-Day Compliance Boot Camps coming up soon.

Review the compliance calendar to see a complete list of events that may be in your area.

Also coming up:

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