New FINRA sanction guidelines encourage case review

New FINRA sanction guidelines encourage case review

by | Nov 24, 2020 | Firm News

The Financial Industry Regulatory Authority, known as FINRA, recently announced updates to its guidelines for issuing sanctions to investors accused of practice violations. 

The updates took effect in October of 2020 and highlight the importance of discretion and judgement before making a final decision about penalties. 

Situational considerations

FINRA indicates that violation punishments should not adopt a one-size-fits-all penalty strategy. Instead, every case deserves individual review with important situational facts considered. 

Regulatory Notice 20-37

As explained by Think Advisor, violation reviewers should consider both age and impairment when making sanction decisions. These factors contribute to a person’s ability to recover from any financial losses and therefore may contribute to the outcome of a case and the penalties issued in the matter. 

Ability to pay

When evaluating violation cases, an adjudicator must also evaluate the respondent’s ability to pay any ordered restitution. However, the respondent holds the responsibility for raising any potential concerns about his or her inability to pay such restitution. Once the respondent highlights this concern, an adjudicator must review the person’s situation to assess his or her ability to pay prior to making a final sanction determination. This requirement to review follows FINRA’s adoption of a situational review of each case. 

The updated guidelines give preference to restitution as a primary means of sanctioning violators. FINRA recommends tailoring all sanctions to the facts of the case. In other words, the punishment should fit the crime. The recommendation to review each case individually puts belief into practice and avoids the unilateral disposition of set penalties without regard to mitigating or compounding circumstances.