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NEWSLETTERS & ALERTS
How FINRA Sanctions Can Differ for 2 Brokers Who Exercised Unauthorized Discretion
by Howard Haykin
According to FINRA ...
Broker #1 agreed to a $5K fine and a 20-day suspension to settle FINRA charges that, from May 2015 through April 2016, he effected 176 discretionary transactions in the accounts of 6 customers without obtaining their prior written authorizations, and without his member firm having accepted those accounts as discretionary.
Broker #2 agreed to a $10K fine and a 2-month suspension to settle FINRA charges that, from August 2010 through June 2012, he exercised discretion in the accounts of 8 customers without obtaining their prior written authorization, and without having obtained approval from his member firm to treat those customer accounts as discretionary.
In addition, on two occasions, Broker #2 reportedly submitted "NO" answers on his firm's Annual Compliance Questionnaires ("ACQs") when, according to FINRA, he should have answered "YES". Here are the questions:
- "Do you have Discretionary Authority over any of your client's accounts?"
- "Have you exercised discretionary authority over any of your customer accounts in the past year?"
FINRA'S OBSESSION WITH ANNUAL COMPLIANCE QUESTIONNAIRES. So, there we have it. Two brokers, charged with very similar violations, received very different sanctions. Broker #2 was hit with extra sanctions that I contend is due principally, if not expressly, to his responses on his firm's Annual Compliance Questionnaires. IN EFFECT, PRESUMING THAT FINRA'S FINDINGS ARE TRUE, THEN BROKER #2 WAS PUNISHED FOR NOT 'SELF-INCRIMINATING."
So, while I’m a huge fan of ACQ’s, and in my earlier life as a compliance consultant I encouraged my clients to use ACQs, I nevertheless contend that FINRA places too much reliance and credence on these compliance tools which, in large part, serve as a “CYA” for firms. [To see my full discussion, click on: “FINRA's Undue Emphasis on Annual Compliance Questionnaires” (6/26/17)],
These cases were reported in FINRA Disciplinary Actions for July 2017. For specific details, refer to ... AWC #2016048746401 and AWC #2012030677102.