FINRA's NAC Revises the Sanction Guidelines
Referenced Rules & Notices
FINRA By-Laws, Article V
FINRA Rules 1122, 2010, 2111, 2121, 3110, 3240, 3270, 4511, 4560, 5310, 7230A and 7330
MSRB Notice 2004-3
MSRB Rules G-7, G-8, G-9, G-17, G-18, G-27 and G-30
NASD Rules 2150 and 3010
Securities Act of 1933, Section 5
Securities Exchange Act of 1934, Section 17, and SEA Rules 17a-3 and 17a-4
FINRA Sanction Guidelines
This Notice advises FINRA firms of revisions to FINRA's Sanction Guidelines. FINRA initiated a periodic review of the Sanction Guidelines through the National Adjudicatory Council (NAC) to ensure that the guidelines reflect recent developments in the disciplinary process, comport with changes in FINRA's rules, and accurately reflect the levels of sanctions imposed in FINRA disciplinary proceedings. These revisions:
The revised Sanction Guidelines are effective immediately and available on FINRA's website at www.finra.org/Industry/Enforcement/SanctionGuidelines.
Questions concerning this Notice may be directed to:
FINRA's Sanction Guidelines familiarize firms with some of the typical securities-industry rule violations that occur, and the range of disciplinary sanctions that may result from those rule violations. The goal of the Sanction Guidelines is to assist FINRA's adjudicators in determining the appropriate sanctions in disciplinary proceedings. The Sanction Guidelines do not provide predetermined or fixed sanctions for particular violations. Rather, the central idea contained in the Sanction Guidelines is that adjudicators start with a range of appropriate sanctions for a particular violation and consider aggravating and mitigating factors in order to arrive at an appropriate sanction for the particular circumstances. FINRA initiates periodic reviews of the Sanction Guidelines through the NAC to ensure that the Sanction Guidelines reflect recent developments in the disciplinary process, comport with changes in FINRA's rules and accurately reflect the levels of sanctions imposed in FINRA disciplinary proceedings. The revisions discussed in this Notice are the result of FINRA's most recent review of the Sanction Guidelines. Further review is underway of changes to make the Sanction Guidelines more effective.
FINRA has introduced one new principal consideration that analyzes whether a respondent has exercised undue influence over a customer, three new Sanction Guidelines (Supervision—Systemic Supervisory Failures, Borrowing From or Lending to Customers, and Short Interest Reporting), and one new general principle that examines the mitigative effect of regulator or firm-imposed sanctions and corrective action.
Revisions to Existing Sanction Guidelines
FINRA modified the non-monetary (suspension) and monetary (fine) range of sanctions for several guidelines that involve more serious violations of FINRA rules. For example, the guideline for Sales of Unregistered Securities, as amended, raises the sanctions for unregistered securities sales that involve a high volume of "penny stock" transactions.1 The amended guideline adds principal considerations that focus on a respondent's penny stock activities and advises adjudicators to consider lengthier suspensions and higher fine ranges if an individual respondent's conduct involves a high volume of penny stock transactions or recurring penny stock transactions.
FINRA implemented similar changes to violations that involve churning or unauthorized transactions. The low-end of the suspension range for an individual respondent who engages in churning or unauthorized transactions increased from 10 business days to one month. The high-end suspension range for churning and unauthorized transactions for an individual respondent has increased from one year to two years and the revised guidelines for Churning or Unauthorized Transactions recommend that FINRA adjudicators strongly consider barring an individual respondent when the respondent acted recklessly or intentionally.
1 FINRA adopted the use of the term "penny stock," as it is defined in Section 3(a)(51) of the Securities Exchange Act of 1934 (SEA) and SEA Rule 3a51-1.