Sanction Guidelines Revised by FINRA

The Sanction Guidelines were revised by FINRA to instruct adjudicators in the disciplinary process to consider customer-initiated arbitrations that result in adverse arbitration awards or settlements when assessing sanctions.  Thus, when a respondent’s disciplinary history, and history of arbitration awards and arbitration settlements together with the violation found in a disciplinary case, form a pattern, the Sanction Guidelines advise that adjudications should consider imposing more stringent sanctions.

By enabling adjudicators to consider arbitration settlements and adverse arbitration awards, in addition to the traditionally considered final disciplinary actions, the Sanctions Guidelines will allow adjudicators to take such settlements and awards into account in appropriate cases when determining whether a pattern of harm to investors or market integrity, or disregard of regulatory requirements exists. When such a pattern is established, an adjudicator should consider imposing more severe sanctions than what would have been imposed if no pattern existed. These  Sanction Guidelines revisions will bolster the ability of adjudicators to fulfill the goals of General Principles Nos. 1 and 2 to protect investors and deter misconduct.

The revisions replace the term “disciplinary history” with “Disciplinary and Arbitration History,” which is defined as:

Disciplinary history by regulators, and arbitration awards and arbitration settlements resulting from disputes between a customer and the respondent, including those when the respondent is the subject of an arbitration claim that only names a FINRA member firm.

The Sanction Guidelines currently provide that pending investigations or ongoing regulatory proceedings prior to a final decision are not disciplinary history. There has been no change to this finality requirement for the treatment of regulatory matters. A similar finality rule will also apply to the consideration of arbitration awards and arbitration settlements. An arbitration award that a party has not moved to vacate qualifies as arbitration history, but pending arbitrations do not. If a respondent lost an arbitration award and has filed a motion to vacate, the arbitration award does not qualify as arbitration history while the motion to vacate is pending.  Arbitration settlements reflect the voluntary agreement of the parties and, accordingly, are final.

FINRA is posting on its website guidance specifically for these Sanction Guidelines revisions. Questions and answers have been added to the frequently asked questions related to the Sanction Guidelines.  See Regulatory Notice 18-17 for the complete rule.