Articles Posted in FINRA Regulation

During a recent Financial Services Subcommittee oversight hearing, both Democrat and Republican lawmakers raised concerns before FINRA CEO Robert Cook. Some of the issues discussed were the Regulatory Authority’s standing as a private entity and its handling of fine proceeds, which hit a record $173 million in 2016.

One of the main criticisms voiced by House Representatives referred to FINRA’s practice of keeping fine proceeds instead of giving them back to harmed investors. In this regard, California’s Democratic Representative Brad Sherman pleaded for increased transparency in the regulator’s activities.

Cook heard many hard questions during the hearing, from both sides of the aisle, and he attempted to reply in a satisfactory way. Whenever FINRA’s present reality seemed inadequate, he assured current problems would be addressed by upcoming changes in many aspects of the entity’s activities.

At a recent event hosted by the American Bar Association’s Securities Litigation Committee, three Chief Counsel from the Financial Industry Regulatory Authority’s Enforcement division discussed the agency’s current priorities.

Chief Counsel Sue Light, Gina Petrocelli, and Lara Thyagarajan shed light on the areas that FINRA will be scrutinizing more closely through the second half of 2017.

As per FINRA’s 2017 Priorities Letter, the Regulatory Authority is shifting its focus from a “culture of compliance” to a “blocking and tackling” model, emphasizing on watching brokers with a track record of disciplinary actions.

With the increase in FINRA enforcement activity in the last year, we hear daily from concerned RAs and other financial industry professionals – this post is intended to decode the basics of the process and offer some cautions to avoid pitfalls awaiting the unwary.

1. How can you become a target of a FINRA investigation?

The Financial Industry Regulatory Authority (FINRA) is a self-regulating organization.  Although it is not a government agency, its primary mission is to protect investors by regulating its members.  All broker-dealers, down to the last firm employee, must abide by FINRA’s rules.

Kevin Richard Graetz, a former broker from New York, recently settled a FINRA complaint relating to his alleged failure to report $1 Million in tax liens over the course of seven years.

FINRA requires registered personnel to disclose tax liens and any other unsatisfied judgments in their Form U4.

As per FINRA’s settlement documents, in his Form U4 filings between February, 2013 and February, 2014, Graetz failed to mention the unsatisfied tax liens he was subject to.

Last April, FINRA announced that it had revised the sanction guidelines that apply when there has been a violation of a FINRA rule. Professionals in the industry whose activities are regulated by FINRA need to be aware of the scope and impact of these changes.

The Sanction Guidelines do not directly prescribe specific penalties or punishments for each particular violation. In essence, their role is to assist FINRA adjudicators to impose sanctions in a fairer and more consistent manner.

They are meant to establish a range of potential sanctions for each type of violation, and they also introduce the concept of aggravating and mitigating factors, which FINRA’s hearing panels and the NAC are expected to consider throughout disciplinary proceedings.