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June 1st, 2018
securities
FINRA REVISES THE SANCTION GUIDELINES

FINRA revised its Sanction Guidelines to instruct adjudicators in the disciplinary process to consider customer-initiated arbitrations that result in adverse arbitration awards or settlements when assessing sanctions. As a result, when a Respondent’s disciplinary history, and history of arbitration awards and arbitration settlements, together with the violation found in a disciplinary case, form a pattern, the new Sanction Guidelines will advise that adjudicators should consider imposing more stringent sanctions.

Currently, the Sanction Guidelines instruct that a Respondent’s disciplinary history should trigger higher sanctions when that disciplinary history: (a) is similar to the misconduct in the current disciplinary case; or (b) evidences a “reckless disregard for regulatory requirements, investor protection, or market integrity.” The newly added section in General Principal No. 2 of the Sanction Guidelines instructs adjudicators to now consider customer-initiated arbitrations that result in adverse arbitration awards or settlements when evaluating an individual Respondent’s background. The revisions replace the term “disciplinary history” with “Disciplinary and Arbitration History,” which is defined as, “disciplinary history by regulators, and arbitration awards and arbitration settlements resulting from disputes between a customer and the respondent, including those when the respondent is the subject of an arbitration claim that only names a FINRA member firm.”

While this new definition includes arbitrations that a customer filed involving investment-related disputes that have been resolved through an adverse award or settlement, the definition excludes customer-initiated arbitration claims that have been filed but not resolved, customer complaints when no arbitration claim has been filed and settlements reached with a customer when no arbitration claim was filed. Dismissals and withdrawals of customers’ arbitration claims will also be excluded from determinations of disciplinary sanctions.

 These revisions to the Sanction Guidelines take effect for all complaints filed in FINRA’s disciplinary system beginning on June 1, 2018. The full Sanction Guidelines and recent revisions can be found on FINRA’s website at www.finra.org/Industry/Enforcement/SanctionGuidelines.

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