Beginning June 1, 2018, FINRA adjudicators in disciplinary cases will consider customer-initiated arbitrations that result in adverse arbitration awards or settlements when assessing sanctions. Thus, when a respondent’s disciplinary history, and history of arbitration awards and arbitration settlements together with the violation found in a disciplinary case, form a pattern, FINRA Sanction Guidelines will advise adjudicators to consider imposing more stringent sanctions.

CHANGE IN WORDING OF FINRA SANCTIONS GUIDELINES.   Currently, the Sanction Guidelines instruct that a respondent’s disciplinary history should trigger higher sanctions when that disciplinary history: (a) is similar to the misconduct in the current disciplinary case; or (b) evidences a “reckless disregard for regulatory requirements, investor protection, or market integrity.”

The newly added section in General Principal No. 2 of the Sanction Guidelines instructs adjudicators to consider customer-initiated arbitrations that result in adverse arbitration awards or settlements when evaluating an individual respondent’s background. The revisions replace the term “disciplinary history” with “Disciplinary and Arbitration History,” which is defined as:

disciplinary history by regulators, and arbitration awards and arbitration settlements resulting from disputes between a customer and the respondent, including those when the respondent is the subject of an arbitration claim that only names a FINRA member firm.

Disciplinary and Arbitration History ...

• includes arbitrations that a customer filed involving investment-related disputes that have been resolved through an adverse award or settlement.
• excludes customer-initiated arbitration claims that have been filed but not resolved.
• excludes customer complaints when no arbitration claim has been filed and settlements reached with a customer when no arbitration claim was filed.
• dismissals and withdrawals of customers’ arbitration claims also will not be relevant to determinations of disciplinary sanctions.
• Sanction Guidelines revisions apply only to individual respondents; they do not apply to member firms.

[Click here for the FINRA Sanctions Guidelines.]