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FINRA recently issued Regulatory Notice 19-23
addressing “extraordinary cooperation” by broker dealers and broker dealer
firms. The Notice highlights FINRA’s
hopes to incentivize broker dealers and broker dealer firms to take “proactive
and voluntary steps beyond those required under FINRA rules” by crediting such
cooperation in FINRA’s regulatory enforcement decisions. The Notice also
clarifies the difference between “required cooperation” and “extraordinary
cooperation” by broker dealer and broker dealer firms, in light of FINRA rules
and policies that already require cooperation in regulatory investigations.
The types of extraordinary cooperation by a broker dealer or
broker dealer firm that may result in lenient enforcement by FINRA include:
“(1) self-reporting before regulators are aware of the issue; (2) extraordinary
steps to correct deficient procedures and systems; (3) extraordinary
remediation to customers; and (4) providing substantial assistance to FINRA’s
investigation.” The Notice provides a few examples of extraordinary cooperation
by member firms and FINRA’s consideration of such cooperation in their
enforcement decisions.
For example, in October 2018, FINRA sanctioned, but did not
fine, a firm due to the firm’s self-reporting, hiring of new staff to address
the issues, implementing new controls, and its comprehensive review of all
wealth management accounts to identify impacted investors. Extraordinary
cooperation is determined on a case-by-case basis, but is nonetheless, consider
by the FINRA Enforcement Department when determining appropriate sanctions and
fines.
We urge our broker dealer and investment adviser clients to fulfill
their cooperation responsibilities as required by FINRA rules and policies, but
also to exhibit extraordinary cooperation where possible, including engaging or
conducting an independent audit or investigation that is thorough and
far-reaching in scope prior to detection of any regulatory issues by FINRA.