FINRA Instructs Adjudicators to Consider Arbitration History When Imposing Sanctions

In newly revised Sanction Guidelines, FINRA instructed adjudicators to consider a respondent's arbitration history when imposing sanctions in customer-initiated arbitrations.

Currently, the guidelines state that higher sanctions are triggered when a respondent's prior disciplinary actions are comparable to current misconduct, or demonstrate a pattern of "reckless disregard for regulatory requirements, investor protection, or market integrity." The revised guidelines 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[.]" Significantly, the expanded definition includes arbitrations when the respondent is "the subject of an arbitration claims that only names a FINRA member firm."

The new guidance also makes clear that Disciplinary and Arbitration History will not include (i) initiated but unresolved customer-initiated arbitration claims, (ii) customer complaints, if no arbitration claim has been filed, (iii) customer settlements where no arbitration claim was ever filed, (iv) any dismissals or withdrawals of customers' arbitration claims, (iv) member firms or (v) any "pending investigations or ongoing regulatory proceedings."

The revised guidelines will go into effect on June 1, 2018, but will apply only to complaints filed in FINRA's disciplinary system on or after that date.