FINRA Gets Tough With Its Sanctions Against Brokers For Suitability Violations

The Financial Industry Regulatory Authority has decided to take tougher actions against brokers who violate suitability standards. The regulator is recommending that the National Adjudicatory Council, which oversees disciplinary proceedings, raise its suggested suspensions for brokers who make unsuitable recommendations from one year to two years. FINRA wants brokers who commit fraud be potentially barred and offending firms face potential expulsion.

FINRA’s revisions to its Sanctions Guidelines are to go into effect right away. They exist to protect investors from brokers who don’t comply with the suitability rule. The rule states that brokers can sell products that are to their benefit as long as these products also are in alignment with helping investors meet their investment goals.

Despite the changes, InvestmentNews reports, there are those who think that FINRA’s proposed sanctions are insufficient and, also, that there may be negative consequences for investors. For example, defendants facing two-year suspensions might opt to fight cases against them rather than settle because of the tougher penalty.

FINRA’s modifications to its Sanctions Guidelines come a month after the Securities and Exchange Commission’s Investor Advisory Committee recommended that regulators join forces to create a database that would conduct background checks on brokers and advisors. This would make it easier for investors to look into the history of financial professionals before allowing them to handle their money. The committee called on the SEC to get self-regulatory organizations, federal regulator, and state regulators to develop this online resource.

The panel said that it felt that elder investors could benefit especially, as they remain a favorite target of financial fraudsters. According to a MetLife study, in 2010 the annual losses from financial elder abuse were at least $2.9 billion. Experts say that the real number is much higher because many incidents are not reported.

Our FINRA arbitration lawyers are here to help investors recover their securities fraud losses.

SEC Panel Calls for Universal Background Check Database, Financial Planning
Sanctions Guidelines, FINRA

National Adjudicatory Council, FINRA

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RBC Capital Markets Must Pay $1M Fine and $434K Restitution to Customers Over Unsuitable Reverse Convertible Sales, Stockbroker Fraud Blog, April 30, 2015

FINRA and SEC Unveil Report on Senior Investors, Cite Concerns About Unsuitable Recommendations, Stockbroker Fraud Blog, April 27, 2015
FINRA Panel Orders Morgan Stanley Unit to Pay Banamex Unit $4.5M Over Alleged Unauthorized Third Party Loans, Institutional Investor Securities Blog, August 15, 2014