FINRA Fines Doubling for Mid and Large Firms
Listen to the article.
With historically high fines being levied for failures to retain and supervise electronic communications across some of the largest financial firms, you may be wondering how fine amounts are decided. On an annual basis FINRA's National Adjudicatory Council (NAC) develops and publishes FINRA Sanction Guidelines to assist FINRA's adjudicators in imposing a range of sanctions that are consistent and fair in disciplinary proceedings.
New fine amount range
Starting this year, the fine amount range will be determined by the size of the firm (small-, mid-, and large-sized).
"The improvements to the Sanction Guidelines address the more common violations committed by firms and individuals over the past years and underscore the seriousness of some violations. The NAC carefully considered the changes and agree that the recommendations should be tailored for individuals and different sizes of firms," said Alan Lawhead, Associate General Counsel to the NAC.
Given the record-breaking fines for communication violations over the last year, we looked into how different the fines will be between the different tiers. While the fines did not change for small firms from 2021 to 2022, there is a large increase in fines for mid- and large-size firms for recordkeeping and supervision violations:
| FINRA Rule | Percent Increase in Fine Amount |
|---|---|
|
Rule 17a-3 |
100% |
|
Rule 17a-4 |
100% |
|
Communications with the Public |
158% |
|
Rule 3110 |
159% |
Systematic supervision failures were noted to have no upper limit for midsize to large size firms.
Other factors affecting fine amount
FINRA has stated that when there are aggravating or significantly aggravating factors, they will consider even higher fines, which is what we’re presently seeing around electronic communications. While the facts and circumstances of each case are different, you can expect an increase in fines if there are:
- Longstanding failures
- Failures to adhere to firm policies
- Off-channel communications on messaging platforms like WhatsApp
FINRA will also consider barring individuals or expelling firms when determining sanctions in each case.
The severity of penalties will also depend on other factors, including:
- Is there a pattern of disciplinary, arbitration or misconduct
- Did the firm accept responsibility for the misconduct prior to detection by the regulator
- Did the firm reasonably attempt or apply corrective measures prior to detection by the regulator
- Were there reasonable supervisory, operational, or technical procedures in place at the time of the violation
- Was there reasonable training and education in place at the time of the violation
- Did the firm retain competent legal advice
- Did the firm attempt to conceal the misconduct or did they attempt to provide substantial assistance to the examinators
- Did the misconduct result directly or indirectly in injury, extent of the injury, and the level of sophistication and age of the injured parties
- Was the firm given prior warnings of misconduct that they did not correct
Other regulators are making the same changes
It’s not just FINRA. We have repeatedly heard SEC officials talk about the importance of recordkeeping requirements.
"Since the 1930s, such recordkeeping has been vital to preserve market integrity," said Gary Gensler, SEC Chair. "As technology changes, it’s even more important that registrants appropriately conduct their communications about business matters within only official channels, and they must maintain and preserve those communications. As part of our examinations and enforcement work, we will continue to ensure compliance with these laws."
With increased fines and aggressive regulator posture, it’s increasingly important to consider making recordkeeping and supervision efforts a top priority for your firm now.
"Other broker dealers and asset managers who are subject to similar requirements under the federal securities laws would be well-served to self-report and self-remediate any deficiencies," says Gubir S. Grewal, Director of the SEC’s Division of Enforcement.
Share this post!
- The AI Balancing Act: 2024 FINRA AI Guidance on Juggling Innovation and Compliance - November 1, 2024
- From Penalties to Practices: Decoding the SEC's New Vision for Communication Records - October 29, 2024
- SEC's 2025 Examination Priorities: Key Takeaways on AI, Crypto and Cybersecurity - October 25, 2024
Smarsh Blog
Our internal subject matter experts and our network of external industry experts are featured with insights into the technology and industry trends that affect your electronic communications compliance initiatives. Sign up to benefit from their deep understanding, tips and best practices regarding how your company can manage compliance risk while unlocking the business value of your communications data.
Ready to enable compliant productivity?
Join the 6,500+ customers using Smarsh to drive their business forward.
More Resources
Watch it Work
Contact Us
Chat
Subscribe to the Smarsh Blog Digest
Subscribe to receive a monthly digest of articles exploring regulatory updates, news, trends and best practices in electronic communications capture and archiving.
Smarsh handles information you submit to Smarsh in accordance with its Privacy Policy. By clicking "submit", you consent to Smarsh processing your information and storing it in accordance with the Privacy Policy and agree to receive communications from Smarsh and its third-party partners regarding products and services that may be of interest to you. You may withdraw your consent at any time by emailing privacy@smarsh.com.
FOLLOW US