New Enforcement Structure Announced by FINRA

FINRA recently announced the Department of Enforcement’s new structure, which marks the completion of the final phase of the integration of FINRA’s enforcement functions, a process that began in July 2017.

FINRA observed that consolidation is a key outcome of FINRA360, FINRA’s ongoing comprehensive self-evaluation and improvement initiative.  Prior to the consolidation, the department was separated into two distinct enforcement teams within the organization. One handling disciplinary actions related to trading-based matters found through Market Regulation’s surveillance and examination programs, and the other handling cases referred from other regulatory oversight divisions, including Member Regulation, Corporate Financing, the Office of Fraud Detection and Market Intelligence, and Advertising Regulation.

The new Enforcement structure is designed to facilitate more consistent decision-making and outcomes by, among other things, supporting new centralized functions. These include a new process for department-wide consultation on matters referred to Enforcement, and a unified team of Enforcement investigators who bring subject-matter expertise to the wide range of cases on the Enforcement docket.

“The consolidation of our enforcement functions enables us to better target developing issues that can harm investors and market integrity, and ensure a uniform approach to charging and sanctions,” said Susan Schroeder, FINRA’s new Head of Enforcement.  Schroeder previously outlined the principles guiding FINRA’s enforcement decisions in a February speech.

Under the unified structure, the Department of Enforcement now contains two new centralized groups which are designed to ensure a more consistent and foreseeable enforcement program:

  • Office of the Counsel to the Head of Enforcement – A new unit that centralizes a group of experienced attorneys and staff to consult on matters referred for Enforcement action, which was created to enhance the consistency and transparency of Enforcement investigations and outcomes.
  • Investigations – A new unit consolidating Enforcement’s non-attorney investigators who have significant industry expertise and investigative experience, and work with Enforcement attorneys and other groups within FINRA that conduct investigations of potential misconduct.

In addition, Enforcement’s staff of more than 150 attorneys is organized in teams to facilitate consistent decision-making across the program while retaining subject-matter expertise in specialized groups:

  • Main Enforcement – This group is comprised of generalist attorneys organized in cross-office teams, who investigate and prosecute all types of disciplinary matters.
  • Sales Practice Enforcement – This is a specialized group of attorneys that counsels Member Supervision examiners during examinations and investigations, and brings disciplinary actions concerning sales practice violations
  • Market Regulation Enforcement – A team of attorneys specializing in counseling Market Regulation examiners and analysts during trading examinations and investigations arising from FINRA’s trading surveillance, and prosecuting resulting disciplinary actions.

Ultimately, while the consolidation benefits FINRA, it will also be good for member firms.  Prior to consolidation, a member firm could find itself in the uncomfortable position of facing enforcement actions from both enforcement teams based upon the same trade-based violation.  This situation generally occurred where the violation was picked up in a regulatory oversight review, and subsequently found through Market Regulation’s surveillance and examination programs.  Since the two enforcement units are now one, it appears that there would only be one enforcement action.