FINRA Interested In Disciplining, Not Punishing

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FINRA Interested In Disciplining, Not Punishing

FINRA emphasized that the regulatory authority’s first goal is the “blocking and tackling” of enforcing its rules, not collecting massive financial penalties, stated Russell Ryan, FINRA Senior Vice President and Deputy Chief of Enforcement, at the Securities Docket Securities Enforcement Forum in Washington.

FINRA does levy some hefty fines every once in a while, but the majority of its enforcement efforts are focused on situations involving investor rip-offs.

“It’s a lot of cases that don’t involve fraud, that don’t involve a lot of big dollars,” said Ryan. “Someone’s got to enforce these rule violations. That’s a space we’re very good at.”

FINRA targets supervisory lapses, sales of unsuitable complex products – notably those aimed at elderly investors – and brokers engaging in outside business activities and “selling away” from the firm’s list of products.

The authority does not involve itself in areas handled by government agencies: “We’re there really to discipline,” said Ryan. “We’re not in the business of law enforcement and punishing people. We do not act as a government law enforcement agency.”

He tried to reassure the audience of compliance professionals that FINRA does not try to run up the bill when it does levy fines: “I don’t sense any indications that we’re out to set records. We look at precedent; we look at sanction guidelines. We take it from there.”

Jeffrey Holik, a partner at Shulman Rogers, stated that brokers are having a difficult time following suitability rules with the proliferation of complex products and that the sales force often does not understand what it is selling.

Ryan added that sometimes when they testify before FINRA brokers still cannot explain how a product works. “What are you thinking,” he said of brokers who have prepared for meetings with FINRA over unsuitable sales. “You don’t understand it after you’re under scrutiny for not understanding it?”

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