On May 30, the Financial Industry Regulatory Authority published Regulatory Notice 18-16, which seeks comment on proposed rule amendments that impose additional restrictions on members who have brokers who previously engaged in significant misconduct. FINRA seeks comments on the following proposals:

• The Rule 9200 Series (Disciplinary Proceedings) and the 9300 Series (Review of Disciplinary Proceedings by National Adjudicatory Council and FINRA Board; Application for SEC Review) to allow a Hearing Panel to impose restrictions on member and broker activities while a disciplinary matter is on appeal with the National Adjudicatory Council, and to require members to adopt heightened supervisory procedures for brokers while such appeal is pending;

• The Rule 9520 Series (Eligibility Proceedings) to require members to adopt heightened supervisory procedures for brokers while a statutory disqualification eligibility request is under FINRA review;

• Rule 8312 (FINRA BrokerCheck Disclosure) to disclose the status of a member as a “taping firm” under Rule 3170 (Tape Recording of Registered Persons by Certain Firms); and

• The NASD Rule 1010 Series (Membership Proceedings) to require members to seek a materiality consultation from FINRA’s Department of Member Regulation through the Membership Application Program Group when a natural person has criminal or disciplinary history before becoming an owner, control person, principal or registered person of an existing member firm.

The comment period for these proposals expires on June 29.

FINRA Revises the Sanction Guidelines

On May 2, the Financial Industry Regulatory Authority announced revisions to its Sanction Guidelines that will instruct disciplinary adjudicators to consider customer-initiated arbitrations resulting in adverse arbitration awards or settlements when assessing sanctions.

The Sanction Guidelines currently explain that a respondent’s sanctions should be higher if the respondent’s disciplinary history is similar to the misconduct in the current case or evidences a “reckless disregard for regulatory requirements, investor protection, or market integrity.” The revised guidelines will now require adjudicators to consider both disciplinary history and customer-initiated arbitrations that result in adverse arbitration awards or settlements when evaluating a respondent’s background.

The revised Sanction Guidelines take effect for all complaints filed in FINRA’s disciplinary system beginning on June 1. The Sanction Guidelines are available here.

Aside from the rule proposals, FINRA has published Regulatory Notice 18-15, which describes members’ existing obligations to implement heightened supervisory procedures under Rule 3110 (Supervision) for high-risk brokers.

Regulatory Notice 18-15 is available here. Regulatory Notice 18-16 is available here.

FINRA Extends Effective Date of Margin Requirements for Covered Agency Transactions

In 2016, the Financial Industry Regulatory Authority announced the Securities and Exchange Commission’s approval of a rule change to establish margin requirements for Covered Agency Transactions. These transactions include (1) To Be Announced transactions, inclusive of adjustable rate mortgage transactions; (2) Specified Pool Transactions; and (3) transactions in Collateralized Mortgage Obligations, issued in conformity with a program of an agency or Government-Sponsored Enterprise, with forward settlement dates.

The new requirements will now take effect on March 25, 2019. Previously, the requirements were scheduled to go into effect on June 25, 2018.

For more information, please see Regulatory Notice 18-18, which is available here.