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Compliance Concepts

So What’s ‘Got My Goat’ About FINRA Sanctions?

October 25, 2018

by Howard Haykin


A seemingly inconsequential case reported by FINRA in its Disciplinary Actions for September 2018 grabbed my attention and wouldn’t let go until I sat down and wrote this post. What I found so troublesome was the punitive nature of FINRA’s sanctions. Read on and see if you agree.   


THE CASE AND FINRA FINDINGS.    An associated person with Deutsche Bank Securities agreed to pay a $5K fine and serve a 15-day suspension to settle FINRA charges that she had engaged in unreported outside business activity. Oh, she also reported on DB annual compliance questionnaires that she had no outside business activities (“OBAs”).


From 2013 until 2015, this individual, who at the time held a Series 79 (Limited Rep - Investment Banking) license, worked part time as a career coach for a career coaching company that marketed itself primarily to international students. For her efforts, she received total compensation of $600-800.


Besides her failure to provide prior written notice or to obtain prior written approval for this activity, this individual compounded her violative conduct by “lying” on Annual Compliance Questionnaires (“ACQs”) for 2013, 2014 and 2015 that she had no outside business affiliations.



SO WHAT’S ‘GOT MY GOAT’ ABOUT THIS CASE AND SCENARIO.    While I readily admit that this individual erred in her judgment, and should have reported her outside business activities, I nonetheless view FINRA's sanctions as "punitive" in nature.


  • The associated person in this case began her career in 2013 – around the same time she began this ‘community service’ – er, Outside Business Activity.
  • Having earned the princely sum of $600-800, FINRA deemed it appropriate to fine this individual $5,000 – which is excessive given the nature of her outside activities.
  • It’s apparent that the individual’s failure to report her OBAs on the ACQs for 2013, 2014 and 2015 factored so heavily in the determination of FINRA’s sanctions.
    • Once again, FINRA’s methodology for meting out sanctions is troublesome, as described in the next section.



INAPPROPRIATE WEIGHTING GIVEN TO ANNUAL COMPLIANCE QUESTIONNAIRES.   This isn’t the first time I’ve complained about FINRA’s methodology for meting out sanctions. and it probably won’t be the last - at least until the regulator adequately reflects upon the following questions or considerations:


  • When will FINRA acknowledge what the industry has long recognized – that ACQs are largely ‘CYAs’ for member firms - and largely address those regulatory obligations that firms cannot readily fulfill through basic supervisory procedures?  
    • Thus individuals' responses on ACQs should not have such a prominent position in FINRA's disciplinary process.


  • It’s unrealistic to expect that someone who, let's say, purposely violated firm policies and/or securities regulations would affirm (i.e., self-incriminate) their violative conduct on an ACQ. 
    • For one thing, self-incrimination might unduly place one's career path at risk.
    • Second, FINRA's penchant for imposing added sanctions to individuals who fail to make such affirmations is tantamount to imposing Double Jeopardy – i.e., punishing persons twice for the same offense.


  • FINRA should, instead, treat its member firms and their associated persons in a similar manner, as it pertains to "self-reporting" violative conduct.
    • FINRA member firms that fail to self-report violative conduct are not subject to Double Jeopardy. 
    • And FINRA member firms that do self-report violative conduct oftentimes reap the benefit of reduced sanctions.



This case was reported in FINRA Disciplinary Actions for September 2018.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017053867701.