Sanction Guidelines - FAQ
General
1. Q: Why does FINRA publish the Sanction Guidelines?
A: FINRA publishes the Sanction Guidelines to familiarize member firms and associated persons with the disciplinary sanctions that could result from typical securities industry rule violations.
2. Q: Who develops the sanctions and fines?
A: The National Adjudicatory Council (NAC), the appellate body for FINRA disciplinary actions and the FINRA committee that considers matters of disciplinary policy, has final authority over the content of the Sanction Guidelines. The FINRA Regulation By-Laws specifically authorize the NAC to consider and act on disciplinary proceedings, enforcement policies, and policies with respect to fines and other sanctions. Although FINRA staff provides input to the NAC with respect to revisions and additions to the Sanction Guidelines, the NAC and the FINRA Board possess ultimate authority with respect to the Sanction Guidelines.
3. Q: Who uses the FINRA Sanction Guidelines?
A: The Sanction Guidelines are used in all formal FINRA disciplinary actions, whether litigated or settled. FINRA's adjudicatory bodies—Hearing Panels and the NAC—rely on the Sanction Guidelines to determine appropriately remedial sanctions. FINRA's Department of Enforcement (“Enforcement”), member firms, associated persons, and counsel also refer to the Sanction Guidelines to negotiate settlements in disciplinary matters. Enforcement also uses the Sanction Guidelines to determine the sanctions to seek in litigated cases.
4. Q: Who serves on FINRA's adjudicatory bodies?
A: FINRA's adjudicatory bodies are made up of industry and non-industry members. Hearing Panels consist of one Hearing Officer and two individuals who currently are, or previously were, associated with a member firm. The NAC is a committee of 15 individuals, seven who are industry members and eight who are non-industry members.
Applying the Guidelines in Disciplinary Proceedings
5. Q: Do the Sanction Guidelines require automatic sanctions in all disciplinary proceedings?
A: No. The Guidelines do not set fixed standards; they provide flexible guidance. FINRA adjudicators are instructed to consider all relevant aggravating and mitigating factors, including the Principal Considerations in Determining Sanctions as well as any additional considerations listed in a particular guideline applicable to the case. Because the sanction ranges recommended in the Guidelines are not mandatory, adjudicators and settling parties can vary from the recommended sanction ranges. The third General Principle Applicable to All Sanction Determinations contained in the Sanction Guidelines explains that: "[t]he recommended ranges in these guidelines are not absolute. The guidelines suggest, but do not mandate, the range and types of sanctions to be applied."
6. Q: Can FINRA assess a sanction that is lower than the minimum in the recommended fine range?
A: Yes. The Sanction Guidelines emphasize that they are intended to be guidelines and that they are not absolute. In both litigated cases and settled matters, the sanctions imposed may fall outside the ranges recommended in the Sanction Guidelines.
7. Q: Do the Sanction Guidelines apply to less serious misconduct that does not warrant a formal disciplinary proceeding?
A: No. The Sanction Guidelines apply only to formal disciplinary actions, whether litigated or settled. The decision whether to bring a formal action or resolve a matter informally is determined on a case-by-case basis by the Department of Enforcement. FINRA addresses less significant misconduct through cautionary action letters and other informal means.
8. Q: What does an adjudicator consider when evaluating whether a respondent’s disciplinary or arbitration history shows a pattern?
A: The Sanction Guidelines state that “[a]djudicators should consider imposing more severe sanctions when a respondent’s disciplinary history . . . shows a pattern of causing investor harm, damaging market integrity, or disregarding regulatory requirements.” For individual respondents, “adjudicators also should consider, in addition to disciplinary history, an individual’s arbitration history when assessing sanctions.” Adjudicators draw on their experience and exercise their judgment when evaluating factors that establish or negate a pattern. In addressing whether disciplinary history (plus arbitration history for individuals) establishes a pattern, adjudicators may focus on the nature, severity, and frequency of the disciplinary and, if applicable, arbitration matters. Factors that weigh against finding a pattern are the time passed since the events, length of time between events, the isolated nature of an event, or other extenuating circumstances.
9. Q: How does an adjudicator determine if a respondent was the subject of an arbitration award or settlement?
A: CRD reflects the answers provided to questions on the Forms U4 and U5, which address whether an individual has been the subject of arbitrations. Further details about these arbitrations are reported on the Disclosure Reporting Page (DRP) for a customer complaint, arbitration or civil litigation. See Form U4 question 14I(4), Form U5 question 7E(4), and Customer Complaint/Arbitration/Litigation DRP. Forms U4 and U5 require firms to report when a customer’s arbitration statement of claim alleges a sales practice violation by an identified associated person, or by an associated person whose identity may be determined by the firm, but who is not named as a party to the arbitration. The instructions to Forms U4 and U5 explain that a firm should answer “yes” if an individual was not named as a respondent, but either: (1) the statement of claim specifically mentions the individual by name and alleges the individual was involved in one or more sales practice violations; or (2) the statement of claim does not name the individual, but the firm has made a good faith determination that the sales practice violation alleged involves one or more particular individuals. FINRA’s guidance regarding how to report when a registered person is the subject of an arbitration claim is contained in Regulatory Notice 09-23. FINRA Regulatory Notice 09-23, at 4-5 (May 18, 2009). Adjudicators will rely on this CRD information for arbitrations in which the respondent was the subject of an allegation of a sales practice violation.
10. Q: Can an adjudicator consider a respondent’s efforts to expunge an arbitration award or settlement?
A: While the Sanction Guidelines provide that adjudicators must rely on the CRD description of arbitration awards and arbitration settlements, these awards and settlements can be expunged from CRD if an arbitration panel issues an award containing expungement relief based on the narrow grounds specified in FINRA Rules 12805(c)(8)(A)(i) or 13805(c)(9)(A)(i) (or FINRA Rule 2080(b)(1) for cases filed before October 16, 2023), and the associated person receives judicial confirmation of the award containing expungement relief per FINRA Rule 2080(a). This process is explained further in Regulatory Notice 23-12. The Sanction Guidelines advise adjudicators that they may consider evidence that a respondent has petitioned a court of competent jurisdiction to confirm an arbitration award that contains expungement relief.
Periodic Revisions of the Guidelines
11. Q: When were the Guidelines last revised?
A. In 2021, FINRA initiated a review to ensure that the Sanction Guidelines accurately reflect the levels of sanctions imposed in FINRA disciplinary proceedings. FINRA published the revised Guidelines in September 2022; see Regulatory Notice 22-20.
12. Q: What process did the NAC follow to adopt the September 2022 revisions to the Sanction Guidelines announced in Notice to Members 22-20?
A: Using historical sanctions information from the past several years, and after extensive discussions among FINRA staff from multiple departments, FINRA drafted and presented to the NAC revised Sanction Guidelines. The NAC, comprised of both industry and non-industry members, voted in favor of the revisions. The revised Sanction Guidelines were then presented to both the Regulatory Policy Committee of the FINRA Board and the FINRA Board, both of which expressed no objections to the revisions.
13. Q: Why were the guidelines split into a subset of guidelines applicable to firms and a separate subset of guidelines applicable to individuals in September 2022?
Prior to September 2022, many guidelines could apply to either firms or individuals, but the principal considerations did not explicitly state if they were relevant to firms, individuals, or both. To address these issues, the September 2022 Sanction Guidelines split the Guidelines into separate sections for firms and individuals. Each section includes the guidelines that are applicable to firms and individuals, respectively.
14. Why do the September 2022 Sanction Guidelines have separate fine ranges for small firms and mid-size or large-size firms?
The September 2022 Sanction Guidelines created separate fine ranges for small firms and mid-size and large-size firms to give adjudicators sanctions guidance tailored by firm size to ensure the imposed sanctions are a meaningful deterrent and are more than the cost of doing business.
15. Q: How do you determine which fine range applies to a firm in the September 2022 Sanction Guidelines?
The September 2022 Sanction Guidelines apply the definition of firm size in FINRA’s By-Laws of the Corporation. The Sanction Guidelines instruct adjudicators to presumptively apply the guideline range specified for the firm’s size but also to consider, using a non-exhaustive list of factors, whether the other range would be more appropriate with a view toward ensuring that the sanctions imposed are remedial and designed to deter future misconduct.
16. Q: Why do some guidelines indicate there is no upper limit and how will FINRA assess fines for violations implicating those guidelines?
The September 2022 Guidelines have nine guidelines applicable to mid-size and large-size firms that recommend fines beginning at $50,000 but with no indicated upper limit in a fine range. Under the previous versions of the Sanction Guidelines, these guidelines had fine ranges with an upper limit. Notwithstanding the existence of an upper limit, FINRA assessed sanctions against firms with fines in excess of the recommended ranges in appropriate circumstances. The September 2022 Sanction Guidelines remove the upper limit of the fine ranges from these select guidelines to reflect the fines imposed for these types of violations and the fact that these guidelines address the most serious violations that FINRA pursues.
Regardless of whether a guideline has a fine range or fine with no upper limit, adjudicators and parties should assess the severity of the misconduct at issue. Adjudicators and parties should also consider all relevant aggravating and mitigating factors, including the Principal Considerations in Determining Sanctions as well as any additional considerations listed in the particular guidelines.
17. Q: How do the September 2022 revisions to the Sanction Guidelines change the fine ranges?
For small firms, the September 2022 Sanction Guidelines increase the minimum low end of the fine ranges to $5,000 for all guidelines. This change was driven by the fact that FINRA does not routinely settle formal disciplinary matters with firms for less than $5,000. Other than raising the low end of the fine ranges, the September 2022 Sanction Guidelines did not increase the fine ranges applicable to small firms from the fine ranges in the prior version of the Sanction Guidelines with four exceptions. These exceptions—(i) Fraud, Misrepresentations, or Omissions of Material Fact – Intentional or Reckless Misconduct; (ii) Churning, Excessive Trading, or Switching; and (iii) Failure to Respond or Failure to Respond Truthfully to Requests Made Pursuant to FINRA Rule 8210; and (iv) Selling Away (Private Securities Transactions)— are based on the importance of establishing serious sanctions for these violations. In addition, the September 2022 Sanction Guidelines modified the fine for the Request for Automated Submissions of Trading Data—Request for Automated Submissions of Trading Data guideline. The revised guideline now has a fine range as opposed to a per-day fine to be consistent with other guidelines.
For mid-size and large-size firms, the September 2022 Sanction Guidelines increase the low end and high end of the fine ranges for nearly all guidelines to reflect the reality of the size of many sanctions assessed against larger firms. For individuals, the September 2022 Sanction Guidelines decrease the high end of the fine ranges in many guidelines to reflect the reality that sanctions assessed against associated persons typically include a non-monetary sanction (e.g., suspension). In both instances, FINRA is neither raising the fines on mid-size or large-size firms nor decreasing the fines on associated persons. Rather, FINRA is making the September 2022 Sanction Guidelines reflect the fines historically assessed against mid-size and large-size members firms and associated persons.
18. Q: How did FINRA determine which guidelines to remove in the September 2022 Sanction Guidelines?
FINRA’s decision to remove guidelines was a multi-step process involving many factors. FINRA considered its regulatory policies and objectives, the frequency of disciplinary action for certain violations, and the need for guidance in particular areas. FINRA also considered whether a firm or an individual could commit the violation. Deleting a specific guideline, however, does not limit the enforceability of the underlying rules. For violations that are not addressed with a guideline, adjudicators should look to analogous violations for guidance.
19. Q: What additional non-monetary sanctions for firms are addressed in the September 2022 Sanction Guidelines?
The Sanction Guidelines always have instructed adjudicators to consider both monetary and non-monetary sanctions. The September 2022 Sanction Guidelines describe non-monetary sanctions that adjudicators should consider, including requiring a respondent firm to retain an independent consultant to design and implement procedures for improved future compliance with regulatory requirements; suspending or barring a respondent firm from engaging in a particular business line or activity; limiting a respondent firm’s business lines or products offered; requiring a respondent firm to implement heightened supervision of certain individuals or departments in the firm; requiring a respondent firm to certify to FINRA that it has adopted revised supervisory procedures or has completed a task; suspending a respondent firm from opening new customer accounts for a specified period of time; requiring a respondent firm or individual respondent to obtain a FINRA staff “no objection” letter regarding a proposed communication with the public prior to disseminating that communication to the public; and requiring a respondent firm to institute tape recording procedures.
In addition, certain guidelines in the September 2022 Sanction Guidelines explicitly recommend that adjudicators consider non-monetary sanctions. The absence of this recommendation in other guidelines, however, should not be considered a limitation of adjudicators’ discretion to craft appropriate sanctions in all cases.