Advisor Alert — FINRA Sanction Guidelines Amended to Further Protect Senior Investors
On October 20, 2020, FINRA’s National Adjudicatory Council (NAC) revised its Sanction Guidelines so that a customer’s age or physical or mental impairment will be considered in disciplinary cases, reflecting recent attention to elder abuse in the financial services industry. FINRA’s announcement, effective immediately, updates the “Principal Considerations in Determining Sanctions” section of the Sanction Guidelines. Specifically, the changes amend Principal Consideration No. 19 and add a Principal Consideration No. 20, both aimed at further protecting potentially vulnerable investors.
The NAC is FINRA’s appellate tribunal for disciplinary cases, a committee consisting of 15 industry and non-industry members. The NAC has developed the Sanction Guidelines for use by various bodies when determining disciplinary cases, including hearing panels and the NAC itself. The Sanction Guidelines allow member firms, associated persons, and their legal counsel to anticipate the types of disciplinary sanctions that may apply to various violations, and to assist in crafting settlements with FINRA. Not intended to be absolute, the Sanction Guidelines recommend ranges for sanctions and suggest factors that adjudicators can consider in determining appropriate sanctions. Given this discretion, sanctions can fall within, or in some cases outside of, the recommended range. In addition, aggravating or mitigating factors beyond those listed in the Sanction Guidelines may also be considered.
Periodic reviews of the Sanction Guidelines are conducted by the NAC to ensure consistency with recent developments in FINRA’s regulatory regime. Currently, FINRA is assessing the effectiveness and efficiency of rules and processes that are designed to help protect senior investors from exploitation. For example, and as we have recently discussed, FINRA has proposed measures under Rule 2165 to more effectively address matters involving the suspected financial exploitation of senior investors. Likewise, the NAC’s most recent amendments of the Sanction Guidelines seek to bolster protections for seniors and other customers who may be more susceptible to member firm or broker misconduct.
The NAC’s recent changes to the Sanction Guidelines are twofold. First, Principal Consideration No. 19, which concerns the exercise of undue influence over a customer, is amended to also address whether the customer had a mental or physical impairment that rendered the person unable to protect his or her interests. Second, Principal Consideration No. 20 is added to the list, addressing whether the customer is age 65 or older.
These 20 Principal Considerations serve as a list of factors to be assessed in conjunction with the imposition of sanctions for all categories of violations, thereby supplementing violation-specific factors. FINRA clarifies that the amended Principal Consideration No. 19 and new Principal Consideration No. 20 are offered as potentially aggravating factors. This means that adjudicators “should consider the facts and circumstances of the case and the type of violation when deciding whether the customer’s age and mental or physical impairment should be considered an aggravating factor when assessing the appropriate sanction for a violation.”
The attorneys at Giarrusso Law Group LLC have considerable experience with issues unique to the financial services industry, including FINRA rules and regulatory developments affecting member firms and their associated persons. If you have a question regarding this recent announcement or any other FINRA matter, you may contact us at (201) 771-1115 or info@gialawgroup.com for a no-cost and confidential consultation.