Short of formal guidance, broker-dealers wondering what to do about their 12b-1 fees will have to read between the lines of Finra’s “extraordinary cooperation” rule and several high-profile cases that have awarded firms “credit” and reduced fines if they self-reported and remediated customer harm, Finra officials said.

Finra’s Executive Vice President of Enforcement Susan Schroeder told broker-dealers executives at a Sifma conference in New York on Monday that the self-regulator will reward “extraordinary cooperation,” when it comes to broker-dealers that self-report and reimburse wrongdoing, including undisclosed 12b-1 fees.

“We believe strongly in credit for extraordinary cooperation, and restitution and remediation are very important factors for us,” Finra’s Executive Vice President of Enforcement Susan Schroeder said, pointing to Finra's Guidance Regarding Credit for Extraordinary Cooperation (Rule 4530).

“When misconduct results in financial harm, we will expect the member firm or the individual who caused that harm to remediate and make the customers whole,” added Schroeder. This “is a way that respondents can help themselves and help us effectively resolve matters.”

Schroeder also said that Finra plans to update the extraordinary cooperation rule, which discusses the value of self-reporting, extraordinary cooperation, restitution and remediation.

“We are currently working to update that guidance and anticipate some refreshed guidance this year, Schroeder said. “We believe strongly in credit for extraordinary cooperation, and restitution and remediation are very important factors for us, particularly in light of Rule 4530’s requirement of self-reporting under some circumstances,” Schroeder said.

When asked if Finra would produce a companion piece to the SEC’s “Share Class Selection Disclosure Initiative” released yesterday, a Finra official pointed to Schroeder’s speech and a number of high-profile enforcement cases Finra has brought against wirehouses and broker-dealers as a roadmap for b-ds to follow when considering what to do about 12b-1 fees.

Finra specifically pointed to the case it settled with Wells Fargo, Raymond James and LPL in 2015, which ordered Wells Fargo Advisors, Raymond James and LPL Financial to pay $30 Million in customer restitution for mutual fund overcharges.  The fines reflected a reduction in sanctions based on the firms’ detection and self-reporting of these errors, Finra EVP and Chief of Enforcement Brad Bennett said.

“In this case, Finra is ordering meaningful restitution to adversely affected investors consistent with our commitment to ensure that mutual fund investors get the full benefit of available fee and expense reductions,” said Bennett. “While Wells Fargo, Raymond James and LPL failed to ensure that customers received these discounts, FINRA’s sanctions acknowledge that the firms detected and self-reported these errors, and will provide full restitution to customers.”

Notably, Finra’s guidance falls short of the initiative the SEC released yesterday regarding the self-reporting and reimbursement of undisclosed 12B-1 fees by registered investment advisors.

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