FINRA cracks down on financial exploitation of clients

Written on Apr 12, 2017

The Financial Industry Regulatory Authority (FINRA) has revised its sanctioning guidelines to include consideration of whether a firm or an adviser exerted undue influence over vulnerable customers.

All violations addressed by FINRA now will require that disciplinary proceedings determine whether "vulnerable individuals or individuals with diminished capacity" were subjects of financial exploitation.

The change is the result of FINRA accepting the suggestions of its National Adjudicatory Council, the self-regulator's 15-member committee composed of industry and non-industry members that serves as an appellate tribunal for disciplinary cases. The changes were announced in a FINRA regulatory notice.

In addition to the change involving vulnerable clients, three new guidelines were issued relating to systemic supervisory failures, borrowing and lending arrangements, and short interest reporting.

FINRA said the guidelines do not prescribe fixed sanctions for particular violations, but are intended to help hearing panels and the National Adjudicatory Council in imposing appropriate sanctions consistently and fairly in disciplinary proceedings. The guidelines also are used by the group's market regulation and enforcement departments to help determine the appropriate sanctions to seek in settled and litigated cases.

The last time the sanction guidelines was updated was in May 2015.

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