The National Adjudicatory Council (NAC) has recently updated FINRA Sanction Guidelines. The updated document outline some general principles applicable to all sanctions as well as a list of principal considerations in determining sanctions.
The new guidelines are effective from 29 September 2022 and apply to all disciplinary matters including those that are pending.
Key changes to the guidelines include:
- new fine ranges;
- changes to fine ranges (including the removal of an upper limit for some violations);
- new anti-money-laundering (AML) guidelines;
- additional non-monetary sanctions;
- $5,000 minimum for all fine ranges.
The guidelines draw attention to the fact that disciplinary history is an important consideration when determining sanctions and the guidelines make very clear that escalating sanctions should be imposed on repeat offenders, or recidivists. Offenders specifically targeted as recidivists are those whose disciplinary history:
- includes significant past misconduct that is similar to the misconduct at issue; or
- shows a pattern of causing investor harm, damaging market integrity, or disregarding regulatory requirements.
Deterrence and remediation of misconduct are a key objective of sanctions. To fulfil these objectives the adjudicator toolkit includes:
- fines;
- suspensions;
- bars; and
- expulsions.
In addition other fitting sanctions may be designed and imposed by an adjudicator. These can include:
- censures;
- certification of adoption of revised procedures or completion of required task;
- heightened supervision of individuals or departments;
- limitation of business lines or products offered;
- restitution;
- requalification;
- retention of an independent consultant;
- requirement for a “no objection” letter before communicating with the public;
- suspension from engaging in a line of business or activity;
- suspension from opening of new customer accounts.
The guidelines include some useful insight into the types of violations frequently seen by FINRA. Each violation listed includes fine ranges for small as well as midsize or large firms and suggestions for suspension, expulsion or other sanctions.
It is worth noting that, for midsize or large firms, the following violations attract monetary sanctions with no upper limit:
| Violation | Violation detail | FINRA Rules |
| Anti money laundering | Failure to reasonably monitor to report suspicious transactions | 3310(a) 3310(f)(ii) 2010 |
| Sale of unregistered securities | Where high volume or recurring transactions in penny stocks involved | 2010 Also Section 5 Securities Act 1933 |
| Failure to respond | Failure to respond or to respond truthfully | 8210 |
| Best execution | N/A | 5310 2010 |
| Marking the open or marking the close | N/A | 5210 2010 |
| Churning, excessive trading, or switching | N/A | 2020 2111 2010 |
| Fraud, misrepresentation, or omissions of material fact | N/A | 2020 2010 |
| Pricing | Excessive markups/markdowns and excessive commissions | 2121 2121 Supp. Material .01 and .02 2010 |
| Research analysts and research reports | Relationships, information barriers, and potential conflicts where misconduct intentional or reckless | 2241 2242 2010 |
| Research analysts and research reports | Research report disclosure requirements | 2241(c) 2242(c) 2010 |
| Research analysts and research reports | Restrictions on personal trading where misconduct intentional or reckless | 2241(b)(2)(J) 2242(b)(2)(J) 2010 |
| Supervision | Systemic supervisory failures | 3110 2010 |