RIA Compliance Blog
Susan A. Schroeder, the Executive Vice President and Head of Enforcement at the Financial Industry Regulatory Authority, recently discussed FINRA’s Enforcement Department’s day-to-day activities and goals at an event sponsored by the Securities Industry and Financial Markets Association (“SIFMA”). Schroeder discussed FINRA’s efforts to combine two enforcement groups into one unit, as well as FINRA’s intention to continue to devote its time to “vigorous enforcement” despite calls for less regulation in Washington.
In early 2017, FINRA began what Schroeder described as “a comprehensive self-evaluation and organizational improvement initiative called FINRA360.” Before FINRA360, FINRA employed two separate enforcement teams. One was tasked with administering disciplinary events pertaining to trading-based matters discovered by FINRA’s Market Regulation oversight division. The other was tasked with administering disciplinary events brought forward by FINRA’s other regulatory oversight divisions, such as Member Regulation and Corporate Financing. FINRA concluded through FINRA360 that combining these two enforcement groups into one unit could bring about “more efficiency and greater effectiveness through better communication.”
Schroeder stated that in spite of calls for deregulation, FINRA intends to continue to make “vigorous enforcement” a priority. Schroeder also expressed FINRA’s support for the Securities and Exchange Commission’s prioritization of protecting retail investors from conduct that is likely to harm them and of preventing compromises in market integrity.
Schroeder also discussed the effectiveness of the various remedies that FINRA uses to punish wrongdoers and encourage compliance. She described fines and sanctions as designed to encourage wrongdoers to change their practices. She emphasized that while fines can be effective at encouraging compliance, they are not always the most effective means of doing so. In finding ways to encourage compliance, FINRA evaluates every remedy available to it, such as restitution, obligating a person to requalify, and barring wrongdoers from the securities industry. If FINRA finds that there is confusion regarding a certain matter across the entire securities industry, it may release a Regulatory Notice to clear up the confusion and assist firms in becoming or remaining compliant.
Schroeder also mentioned what FINRA has discovered from cases involving compliance officers and how it can use that information to educate other compliance officers. FINRA noted that in the event that a compliance officer is held liable for misconduct, it is best to “explain more clearly both the legal framework and the facts that informed the decision that legal liability was appropriate.” FINRA believes that if it does this, other compliance officers will be compelled to make their own practices more compliant with FINRA’s rules.
Finally, Schroeder discussed how FINRA handles cybersecurity issues. While FINRA does not have a cybersecurity rule of its own, member firms are required to comply with the SEC’s Regulation S-P. According to Schroeder, user error and insider threats are the most common cybersecurity issues that FINRA has encountered.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including compliance with federal and state laws and rules. Please visit our website for more information.