The Financial Industry Regulatory Authority (FINRA) increased penalties for member violations of securities rules in new guidance.
Revisions to FINRA’s sanctions guidelines, effective Sept. 29, split the current guidelines for sanctions between individuals and firms and separate fine ranges for the latter into one range for small firms and another for mid-sized to large firms.
The guidelines establish new penalties for anti-money laundering (AML) violations, including removing the upper limit on certain fines for violations like failing to reasonably monitor and report suspicious transactions. The guidelines also provide fine ranges for individuals and lay out when a firm or individual should be suspended or expelled for misconduct.
The guidelines describe a series of general principles FINRA will apply to all sanction determinations, including deterrence; more severe penalties for repeat offenders; sanctions tailored to respond to the misconduct at issue; aggregating violations together, depending on the facts of the case; when restitution should be paid to victims; disgorgement of ill-gotten gains; and weighing of factors like if other regulators have punished a firm or individual for the same misconduct. Sanctioned firms and individuals can apply to have sanctions waived or lowered over an inability to pay. All respondents in a sanction case will have to requalify by examination as a condition of continuing to operate or work in the securities industry.
The guidelines establish a $5,000 minimum penalty for any sanction on a firm that merits a fine, according to a FINRA regulatory notice. The minimum fine on an individual is $2,500. The new penalties were established by the National Adjudicatory Council.
The new sanctions guidelines for AML violations for small firms—those with 150 or fewer financial professionals—include:
- $10,000 to $310,000 for failing to reasonably monitor and report suspicious transactions;
- $10,000 to $100,000 for a deficient AML program; and
- $5,000 to $50,000 for failing to provide for independent testing, designation of responsible individuals, or training.
For mid-sized and large firms, the AML sanctions guidelines include:
- $50,000 to no upper limit for failing to reasonably monitor and report suspicious transactions;
- $20,000 to $310,000 for a deficient AML program; and
- $20,000 to $200,000 for failing to provide for independent testing, designation of responsible individuals, or training.
For all sizes of firms, AML violations could merit consideration of a suspension of 10 days to two months. Aggravating circumstances could merit as much as a two-year suspension, FINRA said.
Failing to respond truthfully to investigators; fraud, misrepresentation, or omissions of fact; violation of the best execution rule; systemic supervisory failures; and churning, excessive trading, or switching could warrant a fine of as much as $310,000 for small firms. There would be no upper limit for related penalties imposed on mid-sized and large firms.
Similar sanctions of up to $310,000 for small firms—and no upper limit for larger firms—would apply to excessive markups/markdowns and excessive commissions and violations related to research report relationships, information barriers, potential conflicts, disclosure failures, and restrictions on personal trading.
For individuals, sanctions reach as high as $100,000, with many violations already having established penalties regarding suspension or expulsion.