FINRA’s National Adjudicatory Council (“NAC”) has revised its Sanction Guidelines that outline particular securities industry rule violations and the range of disciplinary sanctions that may result from such rule violations. The revised Sanction Guidelines involve violations of misrepresentation and suitability rules and take effect immediately. These revisions are part of the NAC’s periodic review of the Sanction Guidelines to ensure that they reflect recent developments in FINRA’s disciplinary process, changes in FINRA rules, and accurately reflect the current level of sanctions imposed in FINRA disciplinary proceedings.
FINRA stated in its Regulatory Notice 15-15, that the goal of FINRA’s Sanction Guidelines is to assist FINRA’s adjudicators in determining the appropriate sanctions in disciplinary proceedings. While the Sanction Guidelines do not provide fixed sanctions for particular rule violations, they do provide a range of sanctions for a particular violation and then adjudicators are free to consider aggravating or mitigating circumstances in order to decide on an appropriate sanction.
As part of its updates, the NAC revised the guideline relating to fraud, misrepresentations or material omissions of fact. For intentional or reckless fraud by individuals, the amended language eliminates the idea that individuals should be “considered” for a bar in egregious cases. The revised language states that adjudicators should “strongly consider” barring an individual unless there are significant mitigating factors. A similar amendment was created for intentional or reckless fraud by FINRA member firms. The revised Sanction Guidelines also advise suspension of an individual for 31 days to two years for negligent misrepresentations or material omissions of fact.
With respect to violations of FINRA’s suitability rule, Rule 2111, the NAC increased the range of non-monetary sanctions suggested to ensure that such sanctions for unsuitable recommendations to customers are meaningful and have a deterrent effect. For unsuitable recommendations by an individual, the NAC increased the high end of the guideline to a suspension of two years, rather than one year. The revised guideline also advises adjudicators to “strongly consider” barring an individual where there are significant aggravating factors. For unsuitable recommendations involving a FINRA member firm, the revised guideline advises considering suspending a firm with respect to a limited set of activities for up to 90 days, and in egregious cases, to “strongly consider” suspending a firm for any or all activities for longer than 90 days or expelling a firm altogether.
In addition, the NAC reiterated FINRA’s position that sanctions in disciplinary proceedings should be more severe for recidivists.
These updates make clear that FINRA is focused on these types of rule violations and FINRA hopes to deter such misconduct before it occurs. However, when such misconduct by individuals and member firms does occur, bars and suspensions from the industry may become more routine.