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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.