REUTERS SUMMIT-Wall Street watchdog to review sanction guidelines

June 17, 2014

(For other news from the Reuters Global Wealth ManagementSummit (LSE: SUMM.Lnews) , click on from SEC commissioner and lawyers; adds background)

By Suzanne Barlyn

June 16 (Reuters) – The head of Wall Street’sindustry-funded watchdog, Richard Ketchum, said on Monday thatthe group will review its guidelines for imposing fines on thebrokers and companies it oversees, in his first public responseto criticism that the regulator’s penalties were too small tocorrect errant behavior.

Ketchum, chief executive of the Financial IndustryRegulatory Authority, speaking at the Reuters Global WealthManagement Summit in New York (Frankfurt: HX6.Fnews) , said the review will hone in onsanctions for repeat offenders and look into whether thereshould be a separate category for the largest brokerage firms.

Kara Stein, a commissioner of the U.S. Securities andExchange Commission who last month said the results of FINRAenforcement cases “are too often financially insignificant forthe wrongdoers,” on Monday praised the steps FINRA is taking.

“I’m pleased to learn that FINRA is reviewing its penaltiesand sanctions to ensure the most effective enforcement anddeterrence program for both investors and the marketplace,” shesaid in an email to Reuters.

Stein, in her remarks to FINRA’s division of marketregulation last month, had suggested that FINRA review itsguidelines.

FINRA’s oversight of Wall Street has come under scrutiny inrecent months, including the supervision of problem brokers andthe vetting of arbitrators who hear brokerage industry cases.The regulator oversees nearly 634,000 brokers and more than4,140 securities firms.

Under Ketchum, the regulator has been responding. In April,for example, FINRA imposed mandatory background checks forbrokers every five years after it came to light that some 1,600failed to include criminal charges and other problematic issuesthat should have been in their files.

The regulator also launched a program for expeditingdisciplinary cases involving high-risk brokers.


FINRA uses a broad set of sanction guidelines, developed in1993, to determine fines and other penalties in enforcementcases. The guidelines, which cover 10 areas of potentialmisconduct, recommend a range of monetary penalties and lay outother factors to consider in the imposition of fines, such as afirm’s history and size.

FINRA has not reviewed the guidelines in at least fiveyears, Ketchum said.

“The basic purpose is to discourage bad behavior,” Ketchumsaid, adding that the guidelines are designed to be fair.

Daniel Nathan, a lawyer for Morrison & Forrester inWashington and a former FINRA regional enforcement director,said updating the guidelines would give the disciplinary process”greater predictability” by making them more consistent withFINRA’s current enforcement policy and decisions imposed byhearing officers.

“It is high time that the guidelines be brought into themodern age,” Nathan said.


FINRA imposed a total of $65 million in fines in 2013,compared with $69 million the previous year.

Brian Rubin, a lawyer at Sutherland Asbill & Brennan LLP inWashington who defends brokerages in FINRA enforcement cases,said the decrease is largely due to the winding down offinancial crisis enforcement cases.

On Monday, FINRA fined Bank of America Corp’s Merrill Lynch unit $8 million and ordered it to repay $24.4million to settle allegations it overcharged thousands ofcharities and retirement accounts by failing to waive mutualfund sales charges. [ID: nL2N0OX0LW] Merrill neither admittednor denied the charges.

An $8 million fine against Brown Brothers Harriman inFebruary had set a record for anti money-laundering violations,FINRA said at the time.

“They suggest that where FINRA thinks it makes sense, theywill assess large fines,” Rubin said.

Nonetheless, fines in the thousands of dollars are far morecommon, according to a review of FINRA’s disciplinary database.

They include, for example, a $37,500 fine against abrokerage for reporting violations. A firm that held customers’checks for too long and also violated industry rules aboutkeeping enough capital on hand received a $7,500 fine, accordingto FINRA records. (Reporting by Suzanne Barlyn; Additional reporting by Sarah N.Lynch; Editing by Paritosh Bansal and Leslie Adler)

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