The Financial Industry Regulatory Authority issued new guidance today describing ways broker-dealers can help themselves earn credit with enforcers by uncovering sales abuses and other infractions ahead of time and earning for themselves “credit for extraordinary cooperation,” including drastically reduced fines and penalties.
The new guidance is designed to prompt firms and individuals to be proactive and take voluntary steps to correct violations and make investors whole. Firms have been clamoring for the notice, which supplements guidance the self-regulator issued more than a decade ago.
Emily Gordy, a former Finra regulator who is now a partner at the Washington, D.C., law firm of McGuireWoods, says that even though each enforcement action is unique, firms must act quickly and comprehensively to discover any problems and offer a cure to customers. These are “the most important things firms can do in order to get credit, and that comes through loud and clear in this notice,” said Gordy, a former Finra senior vice president of enforcement.
“Now I’d double down on that advice and make sure that clients know if you do that, Finra will credit it.”
Gordy helped draft the last notice on extraordinary cooperation in 2008.
The type of extraordinary cooperation Finra wants to see from firms in order to award them enforcement credits are: (1) to see the firms self-report before regulators are aware of an issue; (2) to see the firms take extraordinary steps to correct deficient procedures and systems; (3) to see the firms offer “extraordinary remediation” to customers; and (4) to see firms offer substantial assistance with Finra’s investigation of the matter.
While firms and broker-dealer executives may still want to know exactly what reduction in fines and enforcement actions they are guaranteed to receive for cooperating, “this isn’t a 75 percent sale at a big box store,” Gordy said. “There are no guarantees. There are no tables that say ‘If you do x, you’ll get y.’ Firms want specifics, but each Finra credit will be based on their assessment of facts and circumstances.”
Finra says explicitly in the new notice that enforcement staff may penalize a firm less harshly than the agency’s guidelines suggest, or at the lowest end of the range, if the firms cooperate, Gordy said.
“This is good news for firms,” she said.
Credit For Good Behavior