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National Adjudicatory Council Revises FINRA Sanction Guidelines

In FINRA Regulatory Notice 20-37, FINRA set forth revised Sanction Guidelines that became effective October 20, 2020.  The new FINRA Sanction Guidelines now expressly contemplate “whether the customer is age 65 or older” and “whether the respondent exercised undue influence over the customer and whether the customer had a mental or physical impairment that renders the person unable to protect his or her own interests”.  The revisions to the Sanction Guidelines come after both FINRA and the National Adjudicatory Council (NAC) reviewed the current guidelines and expressed concerns over potential undue influence exercised over senior investors or those investors who may not be able to protect their own interests.

In the revised Sanction Guidelines, FINRA and the NAC now directly address the issue of potential senior investor abuse, while revising the Sanction Guidelines to be consistent with FINRA Rule 2165 – Financial Exploitation of Specified Adults .  Further, FINRA asserts that “as with other considerations in the Sanction Guidelines, adjudicators should take a principles-based approach to assessing if the rule violations have more impact on elderly or impaired customers, including the customer’s ability to recover from sustaining financial losses”.  In addition, FINRA states that these revisions to the Sanction Guidelines should be considered by adjudicators as only “aggravating factors” when considering an appropriate sanction for a FINRA violation.  While the FINRA Sanction Guidelines do not set forth fixed sanctions for a particular violation, they now provide adjudicators with an additional “aggravating factor” to contemplate in determining the appropriate sanction.

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Author

David L. Ward is a Mintz attorney whose practice includes financial services regulatory matters, internal investigations, and securities-related litigation in state and federal courts. He represents financial services clients before the US Department of Justice, SEC, FINRA, and other regulators.