FINRA Issues Revised Sanction Guidelines

On September 29, 2022, the Financial Industry Regulatory Authority (FINRA) National Adjudicatory Council (NAC) issued significant revisions to FINRA’s Sanction Guidelines¹,  including the first Anti-Money Laundering (AML)-specific guidelines. FINRA’s Sanction Guidelines are used by the Office of Hearing Officers and its appellate body, and the NAC, when litigating disciplinary actions.

The guidelines do not prescribe fixed sanctions for particular violations. Instead, the guidelines provide direction for Adjudicators in imposing sanctions consistently and fairly. Adjudicators may impose sanctions that fall outside of the ranges recommended and may consider aggravating or mitigating factors. The new Guidelines are effective immediately and member firms are encouraged to review them to assess the potential impact on any current matters.

What's New?

Creation of Guidelines specific to individuals and firm sizes.

• One subset of Guidelines applicable to firms and one subset specific to individuals
• Separate fine ranges for small firms and mid-size or large firms

Increases in fine ranges, including removal of the upper limit fine ranges, for rule violations FINRA considers the “most serious violations that FINRA pursues.” These include:

• Sales of Unregistered Securities
• Failure to Respond Truthfully to Requests Made Pursuant to FINRA Rule 8210
• Best Execution
• Marking the Open or Marking the Close
• Churning, Excessive Trading, or Switching
• Fraud, Misrepresentations, or Material Omissions of Fact
• Pricing: Excessive Markups/Markdowns and Excessive Commissions
• Research Analysts and Research Reports
• Supervision: Systemic Supervisory Failures
• Anti-Money Laundering

Addition of six new AML guidelines with no upper limit on fines for mid-size or large firms for certain AML program violations. The six new guidelines include three guidelines for firms and three guidelines for individuals.

• See section for AML Penalty Guidelines below.

Significant changes to fine ranges for Quality of Markets rule violations including eliminating the long-standing tiered approach using first, second, and subsequent actions, and formally eliminating the three-year lookback limitation for prior disciplinary history.

Analysis of potential applicability of non-monetary sanctions, including suspensions, bars, and limitations on business.

Establishment of a minimum fine of $5,000 for all firm types.

Removal of guidelines in 20 areas that historically occur infrequently or were covered by another guidance

Anti Money Laundering Guidelines

FINRA introduced three areas of AML guidelines with fine ranges that may be increased due to aggravating factors. The fine ranges are separated for the firm subset and the individual subset

Firm

Failure to Reasonably Monitor to Report Suspicious Transactions

• Small Firm Monetary Sanction

- Fine of $10,000 to $310,000
- Higher fines may be considered when aggravating factors are present

• Midsize or Large Firm Monetary Sanction

- Fine beginning at $50,000 with no upper limit

Deficient AML Compliance Program

• Small Firm Monetary Sanction

- Fine of $10,000 to $100,000
- Higher fines may be considered when aggravating factors are present

• Midsize or Large Firm Monetary Sanction

- Fine of $20,000 to $310,000
- Higher fines may be considered when aggravating factors are present

Failure to Provide for Independent Testing, Designation of Responsible Individuals, or Training

• Small Firm Monetary Sanction

- Fine of $5,000 to $50,000

• Higher fines may be considered when aggravating factors are present

• Midsize or Large Firm Monetary Sanction

- Fine of $20,000 to $200,000
- Higher fines may be considered when aggravating factors are present

Individual

Failure to Reasonably Monitor to Report Suspicious Transactions

• Fine of $10,000 to $310,000
• Higher fines may be considered when aggravating factors are present

Deficient AML Compliance Program

• Fine of $10,000 to $310,000
• Higher fines may be considered when aggravating factors are present

Failure to Provide for Independent Testing, Designation of Responsible Individuals, or Training

• Fine of $10,000 to $310,000
• Higher fines may be considered when aggravating factors are present

How Guidehouse Can Help

Guidehouse can help corporations assess their compliance programs, including reviewing and identifying gaps in the existing program, and making recommendations for enhancements to avoid violations and fines before they can occur. Guidehouse understands that each corporation is unique and faces different challenges. Guidehouse can recommend tailored approaches to meet regulatory requirements and enact effective compliance solutions for the individual corporation. 

Special thanks to Max Weber for co-authoring this article.