Category Archives: FINRA

FINRA Fines Five Firms for Failure to Waive Mutual Fund Charges

Fines PaidFive Broker-Dealers Ordered to Pay $18 Million in Restitution for Failing to Wave Class A Mutual Fund Share Charges

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FINRA Issues Revisions to Sanction Guidelines


This May the Financial Industry Regulatory Authority (“FINRA”) made revisions to its Sanction Guidelines pertaining to misrepresentations and suitability. The Sanction Guidelines were developed for FINRA by The National Adjudicatory Council (“NAC”) to assist Hearing Panels and the NAC (collectively, the “Adjudicators”) to determine appropriate disciplinary sanctions. Periodically, the NAC reviews the Sanction Guidelines to determine whether current sanctions “are sufficient to achieve deterrence and reflect sanction trends in litigated and settled cases.”

While the NAC did not cite examples of violations as an impetus for the changes, a review of the Sanction Guidelines found that current sanctions were not sufficient to achieve deterrence. Below are highlights of the NAC’s revisions to the Sanction Guidelines from FINRA’s Regulatory Notice 15-15:

  • Revisions to the Sanction Guideline Related to Fraud, Misrepresentations or Material Omissions of Fact

For reckless or intentional fraud the new Sanction Guidelines “eliminates the guidance that individuals should merely be “considered” for a bar in egregious cases. The revision states Adjudicators should “strongly consider” barring an individual”. Similar amendments were made addressing firms.

  • Revisions to the Sanction Guideline Related to Suitability – Unsuitable Recommendations

The guideline was amended to “increase the high-end of the suspension from one year to two years and to “strongly consider” barring an individual respondent where aggravating factors predominate the respondent’s misconduct” for unsuitable recommendations by individuals.

  • Revisions to the General Principles Applicable to All Sanction Determinations, Nos. 1 and 2

The amended General Principle No. 1 advised Adjudicators to consider imposing higher sanctions than recommended to “achieve deterrence, and not a mere cost of doing business.”  General Principle No. 2 has been amended to advise adjudicators to impose “progressively escalating sanctions” on individuals and firms with disciplinary history.

These changes reflect the predominant mentality among Adjudicators that harder penalties are required to deter wrongdoing. It is strongly recommended that firms examine their Written Supervisory Procedures in light of these revisions to ensure compliance and avoid harsh penalties.

For more information on this and other related subjects, please contact us at

or (619) 298-2880.

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FINRA Creates Arbitration Task Force

The Financial Industry Regulatory Authority (“FINRA”) has formed a 13-member Arbitration Task Force in an effort to “improve the transparency, impartiality and efficiency” of the arbitration process.  Arbitration is a formal dispute resolution process for disputes and complaints arising out of investors business dealings with any FINRA brokerage firm. Continue reading

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FINRA Provides Important Guidance on IRA Rollovers

This month, the Financial Industry Regulatory Authority (“FINRA”) released a regulatory notice reminding member firms of their responsibilities concerning individual retirement account (“IRA”) rollovers and potential conflicts of interest. A conflict exists when brokerage firms have an economic incentive to rollover retirement assets into an IRA sold by the brokers. Consequently, FINRA is reminding brokers that they must evaluate whether it is in the clients best interest to transfer money from the client’s previous 401(k) Plan into an IRA rather, than having a client leave its money in the company plan. Failure to do so could constitute a violation of Rule 2111, relating to FINRA’s suitability rule. 

The Regulatory Notice also warns member firms to be careful on how they market IRAs.  According to FINRA’s release, “any recommendation to sell, purchase or hold securities must be suitable for the customer and the information that investors receive must be fair, balanced and not misleading.”  [To this end], “the marketing of the IRA rollover services offered by the broker-dealer must be balanced by a discussion of other available options and how they compare to the IRA offered, particularly with regard to fees.”  The release went on to urge FINRA members to educate representatives to understand the tax, fee and investment implications of a rollover so that this important information is analyzed and provided to clients at the point of sale.

FINRA also relayed that this area will be an examination priority for FINRA in 2014. With this is in mind, it is recommended that member firms review their policies, provide training and reminders to its representatives regarding suitability considerations for IRA rollovers and review all marketing materials for fair and balanced representations.

For further information on this, or other related topics, please contact us at or (619) 298-2880.

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