Ketchum speaks during the Investment Company Institute's Capital Markets Conference in New York

Wall Street regulator FINRA toughens its sanctions guidelines

By Sarah N. Lynch

(Reuters) – Wall Street’s self-policing body unveiled tough new sanctions guidelines on Tuesday that call for stricter penalties against securities brokerages and individual brokers who commit fraud or violate suitability rules.

The new guidelines by the Financial Industry Regulatory Authority call for possibly expelling brokerages or barring individuals who commit fraud, and increasing the range of suspensions from one to two years against brokers who sell products that are not suitable to retail investors.

In addition, FINRA’s new guidelines will in increase the amounts of monetary sanctions by indexing them to the Consumer Price Index (CPI). The adjustment, retroactive to 1998, will apply across the board to the highest ends of monetary ranges that FINRA sets for various types of violations. For example, a maximum $10,000 sanction would now be $14,600.

FINRA will continue to use the CPI to readjust its monetary sanction guidelines every three years.

The changes by FINRA come about a year after its Chief Executive Richard Ketchum told Reuters that it would review the

guidelines. The watchdog group’s National Adjudicatory Council, FINRA’s 14-member appellate tribunal for disciplinary cases, took on the task.

That review followed criticism from U.S. Securities and Exchange Commission Democratic member Kara Stein, who said last year she felt FINRA’s penalties are “too often financially insignificant” for wrongdoers.

FINRA’s oversight of Wall Street brokers has faced scrutiny in recent years from how it supervises problem brokers to the way it vets arbitrators tasked with overseeing cases.

Ketchum has sought to address those concerns. Last year, for instance, FINRA imposed mandatory background checks for brokers every five years.

In a notice published on Tuesday, FINRA said that its new sanctions guidelines are designed to “protect the investing public by deterring misconduct and upholding high standards of business conduct.”

(Additional reporting by Suzanne Barlyn)


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