The rise in regulatory fines

How FINRA compliance consultants ease enforcement action outcome

Regulator examiners are focused on deterring fraud and uncovering supervisory failures, but aren’t expected to draft tailored compliance programs and procedures for a firm. Firms that need this type of assistance reach out to qualified FINRA compliance consultants for guidance. Additionally, FINRA experts are often called upon by either firms or regulators to supervise remediation efforts and monitor on-going compliance activities.

Benefit of hiring a FINRA consultant to assist in remediation

FINRA compliance consultants improve enforcementOne of the benefits of on-boarding a compliance consultant to resolve a violation is having them communicate directly with the regulatory examiner. A consultant with appropriate credentials, such as a General Securities Principal Series 24, can directly communicate procedural changes to enforcement examiners while providing an added sense of relief to the firm’s managing members and confidence for the regulator. Additionally, if new business practices are recommended, the business owner may benefit from better devised solutions through an expert in compliance, rather than an examiner who’s focus is limited to regulation and not hands-on compliance supervision.

Regulators realize they get a benefit from member firms who employ FINRA or SEC consultants in resolving their remediation concerns and value the partnership. Regulation consultants have expertise that extends beyond resources of regulators, which increases examiner confidence. Use of a compliance expert often demonstrates to regulators that the firm takes the violation seriously and is committed to improving. Most firms find, outsourcing to a compliance firm outweighs the cost by getting matters settled sooner and with less frustration. Managing partners also benefit by eliminating uncertainty in interaction with the examiner, so they can focus on assuring clients and helping the business recover from negative press or otherwise.

In some instances, a regulator will require a compliance expert for remediation and on-going monitoring. Settlement may include reviewing transactions, determining whether responsibility lies upon officers or employees, and uncovering additional victims.  Delegating this responsibility onto the compliance consultant does not come lightly. Regulators will seek complete independence between the parties. Restrictions of working together in the past and/or future will be part of the agreement; to ensure conflicts of interest are eliminated.

It’s possible the compliance firm may be asked to enforce the necessary settlement reparations. They may take on the responsibility to calculate and release agreed disbursements for the firm. This gives the regulator confidence the settlement shall be paid under the terms of the enforcement agreement. In such cases, the compliance firm is generally required to submit a report to the regulator showing proof of activities on a scheduled basis. By assigning these tasks to a compliance consultant the regulator can move on to other cases needing attention without the work of verifying receipts or calculating damages. When a mandated restitution is expected to be resolved over several months or a few years, outsourcing to a consultant can significantly shift the burden away from examiners and make life for the firm easier as well.

In some cases, regulators run a risk by mandating support from a outsourced compliance expert. Compliance consultants look at policy and procedure compliance from a perspective that differs from the view of examiners. Occasionally a compliance professional will interpret the degree of egregiousness different than the examiner. The compliance professional may assert the examiner was too strict in applying the rule, or even too broad. These types of discrepancies may delay resolution of an enforcement case until resolved. Therefore, it is important to work with a compliance consulting firm with strong experience in enforcement matters that knows how to demonstrate their own assessment clearly to regulators if necessary.  A seasoned compliance professional may even be able to draw a conclusion that sanctions imposed by the regulator are disproportionate to the level of misconduct. In this type of situation, it is important to have a solid team of compliance professionals advising your firm before coming to a resolution agreement.

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Does your FINRA, MSRB, or SEC member firm need assistance navigating remediation for an enforcement action or exam? Our professionals are highly experienced with regulatory rules. We develop policy and procedure manuals for Broker-Dealers, RIAs, Municipal Brokers, Private fund managers, and more. Our expertise is vertically integrated compliance solutions for firms; bringing business planning, operations, trading, and registration. RND professionals provide –

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FINRA new rules

May 2015 – Increasing FINRA Sanction Guidelines

FINRA is stepping up its position on sanctions with recommendations for stricter guidelines.  What reasons do they have?FINRA new rules

The regulatory mission of FINRA is to protect investors and strengthen market integrity through self-regulation. By emphasizing self regulation, FINRA infuses balance into the regulatory process. But, what is a regulatory authority to do when firms continue to engage in reckless and intentional misconduct? Impose stronger sanctions.

Increased punishment is key to how FINRA plans to deal with firms that continually miss the mark in reporting and compliance requirements. The 2015 stance is that sanctions should be “significant enough to achieve deterrence, and not a mere cost of doing business.”  Is your firm prepared to deal with the complex rules and increased cost of fines?

FINRA has published the Sanction Guidelines so members, associated persons, and counsel can become familiar with the types of disciplinary actions that may be applicable to various cases. The guidelines are not intended to be absolute, but are intended to provide direction for imposing fines. The guidelines infer that firms may fall above or below standard guidelines in their failure to procedures, and that sanctions should be applied fairly based on aggravating or mitigating factors.

Aggravating factors can include:

  • Prior disciplinary actions
  • A pattern of misconduct
  • Ignoring red flags and warnings from regulators
  • Attempts to delay FINRA’s investigation, or conceal or mislead


While, mitigating factors may include:

  • Accepting of responsibility
  • Substantially assisting  FINRA in its investigation
  • Demonstrating the misconduct was not typical of the firm’s compliance history
  • Reasonable reliance on competent legal or accounting advice

Read new FINRA Guidelines here


See the Guidelines

Outside Business Activities

Failure to Honor Arbitration Award

Distributions of Securities

Financial and Operational Practices

Impeding Regulatory Investigations

Improper Use of Funds or Forgery

Qualification and Membership

Quality of Markets

Reporting of Information

Sales Practices