On December 4, 2017, securities industry lawyers and Compliance personnel gathered in Manhattan for a “fireside chat” between Ira D. Hammerman, SIFMA’s Executive Vice President and General Counsel, and Susan A. Schroeder, FINRA’s recently-promoted Executive Vice President and Head of Enforcement. This Alert highlights the key regulatory and enforcement issues that were covered and offers a few points for consideration. 

Ira and Susan covered a lot of ground during the hour-long chat and Susan provided useful insights. Macro subjects included references to FINRA360 and Chairman Cook’s listening tour, and their potential impact on FINRA processes and focus. For now, there seems to be a lot of emphasis on nuts and bolts (“blocking and tackling”) sales practice issues, e.g., the recent headline cases based on fraud against a senior investor, UITs and volatility-based products. Takeaway: keep training those FAs and managers and working on your surveillance systems. 

The industry remains very concerned with fairness and consistency in FINRA’s processes concerning sanctions and Schroeder assured the audience that FINRA too is focused on these issues. Although total fines will be lower in 2017 than they were in 2016, in 2016 there were a few very large cases that skewed the year’s results and 2017 represents a return to the norm. Takeaway: do your precedents/Sanctions Guideline research and make sure that you request, obtain and analyze the authority upon which Enforcement is relying. 

With respect to infrastructure, Susan provided an overview of FINRA’s pending efforts to integrate its main enforcement team and its markets enforcement team into one unit. As many in the industry have experienced first-hand, such major consolidations are intended to achieve efficiencies and at the same time, they generally present layers of challenges and some time to work out the kinks. Time will tell how the finished product impacts markets-related and other investigations. 

An enforcement panel would not be complete without a discussion of industry concern about regulators “piling on” and regulators’ discussion of their efforts to try to avoid duplication where possible. Schroeder emphasized that FINRA is very sensitive to these issues and noted that she and SEC co-head of Enforcement Stephanie Avakian were partners at WilmerHale. With respect to industry concerns about duplicative investigations as well as other staff-related concerns that arise during investigations, Schroeder said that FINRA expects and welcomes escalation. Takeaway: this is kind of a no-brainer but always let the staff member know what you are doing and why, be respectful and pick your shots.

Last but certainly not least, there was discussion concerning the evergreen issues of credit for cooperation, when cooperation becomes “extraordinary,” the impact of Rule 4530 on these issues and recent cases in which firms have received credit for extraordinary cooperation. Although Regulatory Notice 08-70 remains in full force and affect, it would not be surprising to see FINRA update its guidance during the next few years. 

In sum, this was a lively, free-flowing discussion that provided useful insights into FINRA’s Enforcement program.


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