Introduction

FINRA Rule 8210 allows FINRA staff and adjudicators the ability to inspect and copy certain books, records and accounts of their member firms and those associated with such member firms.  Generally, Rule 8210 is used as a means through which FINRA obtains information for examining, investigating or proceeding against a member firm and its associated persons. 

In the April 2017 Legal Risk Management Tip, What You Need to Know About Expungement, we focused on FINRA expungement as it pertains to customer complaints.  Pursuant to Rules 2080 and 2081 and in Arbitrator Rules 12805 and 13805, in order to have a customer complaint removed from the CRD system and your BrokerCheck report, one must demonstrate that:

The bane of every registered person is a bad mark on their Central Registration Depository (“CRD”) or BrokerCheck reports.  This mark can be caused by a number of things, but it is predominantly the result of a customer complaint.  If you have been a registered representative for any number of years, the likelihood of receiving one of these complaints increases.   As soon as a customer complaint is received, whether by you or your firm, it must be reported to FINRA. Once shared with FINRA, it is entered onto your BrokerCheck file.  The end result has both positive and negative results.  Positively, if the complaint is valid it serves as an alert to the public, making people more aware of these complaints.  Additionally, from FINRA’s perspective, this transparency is vital for investor protection.  On the other hand, such complaints can have a negative impact if the complaint is from an angry client who happens to have lost money and is simply blaming the representative.  As individuals or companies, we cannot make the decision whether a complaint is valid or not; simply, all complaints must be reported.

If asked what violation is one of the most popular for FINRA to either settle or charge in a hearing, what you would guess?  Could it be AML?  FCPA?  Or another? One of the most frequently cited violations is failure to follow the firm’s Written Supervisory Procedures (“WSPs”) or having deficient WSPs.

Over the past few years (and perhaps most notably starting with the much publicized Ted Urban Case,)[1] the issue of Chief Compliance Officer (“CCO”) liability has continued to cause anxiety amongst those who hold that title.  Effective February 5, 2004, the U.S. Securities and Exchange Commission (“SEC”) required that registered investment advisers (pursuant to Rule 206(4)-7 of the Investment Advisers Act of 1940, 15 U.S.C. § 80b) and investment companies (pursuant to Rule 38a-1 of the Investment Company Act of 1940, 15 U.S.C. § 80a) designate a CCO. The Financial Industry Regulatory Authority (“FINRA”) followed suit and required its member firms to designate a CCO.  Both regulators expect the CCO to be responsible for administering the firm’s policies and procedures that are reasonably designed to detect and prevent violations of securities laws and regulations.  It’s the ownership and implementation of those procedures that causes potential liability problems for those CCOs.