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FINRA: Regulation by Enforcement, Trends in Fines, Enhanced Examinations

March 29, 2018

At last week’s SIFMA Compliance & Legal Annual Conference, Robert Cook, FINRA’s President and CEO, touched upon several topics during an interview with SIFMA EVP and General Counsel Ira Hammerman. Here’s what Mr. Cook had to say on the following topics:


‘REGULATION BY ENFORCEMENT’.    The challenge is for FINRA not to make up rules through enforcement - even though that is precisely what FINRA enforcement staffers seem to do, according to some FINRA critics. While he acknowledges that disagreements will arise because rules will always be subject to interpretation, Mr. Cook says that FINRA will not necessarily strive to create a world in which everyone always agrees on whether a violation has been committed. Instead, it will strive for programs that have consistent and predictable outcomes based on clear legal standards – such that legal and compliance professionals can say, “I get that.”


TRENDS IN FINES.    It’s said that 2016 was a monster year for fines and sanctions, and since then fines have been on a downward trend. While Mr. Cook is pleased with a downward trend in fines, he downplays the significance of such statistics because there are simply too many external factors that determine the level of fines - many of which are beyond FINRA’s control. Instead, FINRA’s current goal is to have a thoughtful approach to the way it brings enforcement actions. And that would include imposing fair and judicious sanctions that not only penalize for past violations, but deter future violative behavior.


ENHANCED EXAMINATION FRAMEWORK FOR 2018.    FINRA’s soon-to-be-released Progress Report on ‘FINRA 360’, pertaining to its comprehensive self-evaluation and organizational improvement initiative, will include further discussion on the enhanced examination framework that FINRA has adopted for 2018. Here are some of Mr. Cook’s thoughts:


  • FINRA seeks to ensure that its exams are risk-based, focusing on the business model and risks of each firm.
  • While FINRA will continue to examine every firm on at least a 4-year backstop basis, it will be moving away from designating firms as 1-, 2-, 3-, or 4-year cycle (exam) firms.
  • Among its “Things to Come,” FINRA will continue to look at revising its current examination platform to see if it makes sense to consolidate its 3 current exam programs – and if so, how. In any event, there will be no more than 3 exam programs.


[Click here for the 39-minute video of Robert Cook’s Interview at SIFMA C&L Conference.]