iOn July 11, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 19-23 (the Notice) to restate and supplement prior guidance regarding the circumstances by which a firm or individual may influence the outcome of an investigation by exhibiting extraordinary cooperation. The Notice incorporates FINRA’s prior guidance and further clarifies how FINRA defines “extraordinary cooperation” and whether a potential respondent’s cooperation rises to such a level, as distinct from the level of cooperation expected of all member firms and their associated persons.
In determining what constitutes extraordinary cooperation, FINRA’s Sanction Guidelines direct FINRA Enforcement to consider whether a respondent:
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accepted responsibility for an acknowledged misconduct prior to detection and intervention by the firm or a regulator;
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voluntarily employed subsequent corrective measures, prior to detection or intervention by the firm or by a regulator, to revise general and/or specific procedures to avoid recurrence of the misconduct;
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voluntarily and reasonably attempted, prior to detection and intervention by a regulator, to pay restitution or otherwise remedy the misconduct; and
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provided substantial assistance to FINRA in its examination and/or investigation of the underlying misconduct.
In addition to the factors described above, FINRA states that it may provide credit in the following areas, and provides additional guidance:
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where there are steps taken to correct deficient procedures and systems;
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where restitution is made to customers;
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where violations are self-reported; and
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where substantial assistance is provided to assist in FINRA investigations.
The Notice further explains that when FINRA determines that a firm should be given credit for extraordinary cooperation, that credit may take many forms ranging from closing an investigation with no further action or with a Cautionary Action letter, to reduced sanctions in an enforcement proceeding.
Finally, the Notice describes FINRA’s efforts to be more transparent about credit for extraordinary cooperation for both firms and individuals.
A full copy of the Notice is available here.
