Not only does the agency offer enforcement credits for speedy internal investigations and customer reimbursement at broker-dealers, but the notice motivates the industry to police itself for rogue brokers and other abusers. This is because it can save Finra the cost of doing wide-scale investigations if firms have already done all the work and fixed the problems themselves.
The firms that go beyond their regulatory obligations and take extraordinary steps to quickly identify and fix misconduct help Finra with investor protection and market integrity, said Susan Schroeder, executive vice president of the agency’s Department of Enforcement.
The credit extends to firms and associated persons who voluntarily and proactively assist Finra, Schroeder said.
Finra has credited firms before for cooperation. From 2015 through 2018, the agency ordered a number of broker-dealers to pay more than $75 million in restitution, including interest, to affected customers in charitable and retirement accounts who should have had their sales charges waived. But the agency waived all fines because of the firms’ proactive help with the matter.
“Firms initiated, prior to detection or intervention by a regulator, investigations to identify whether the misconduct existed; promptly established a plan of remediation for affected customers; promptly self-reported the conduct to Finra; promptly took action and remedial steps to correct the violative conduct; and employed subsequent corrective measures, prior to detection or intervention by a regulator, to revise their procedures to avoid recurrence of the misconduct,” Finra said in the new notice.
In another case in 2017, Finra ordered a broker-dealer to pay approximately $9.8 million in restitution to customers over its failure to detect and prevent unsuitable short-term trading of unit investment trusts. While Finra fined the firm $3.25 million, that incorporated a substantial reduction for the firm’s cooperation and repayment to customers, the regulator said.