FINRA Spells Out Extraordinary Cooperation - The Industry Spread

Michael Volpe

After spending a decade in finance, Michael Volpe has been a freelance investigative journalist since 2009. His work has been published locally in the Chicago Reader, Chicago Crusader, Chicago Heights Patch, and New City. Nationally, Volpe's work has appeared in a wide variety of publications including the Washington Examiner, the Daily Caller, Crime Magazine, the Southern Christian Leadership Conference Newsletter, and Counter Punch. Volpe has been recognized by whistleblowers as leading the charge in getting their stories out. His first book Prosecutors Gone Wild was published in October 2012, his second book The Definitive Dossier of PTSD in Whistleblowers was published in February 2013 and his third book Bullied to Death was published in August 2015.

FINRA Financial Industry Regulatory Authority

FINRA Spells Out Extraordinary Cooperation

August 11, 2019

FINRA Cooperation FINRA Spells Out Extraordinary Cooperation. FINRA, the Financial Industry Regulatory Authority, would like its member firms to know there’s extra credit possible for cooperating in investigations. 

Susan Schroeder, the executive vice president and head of FINRA Enforcement, was the latest guest on FINRA’s podcast, FINRA Unscripted.

FINRA recently updated its guidance on extraordinary cooperation with FINRA in their investigations. 

Schroeder came on the podcast to talk more about this. 

“Responding to our requests for information is required. Fixing a problem is required.” Schroeder said on the podcast, “if a member firm identifies for example that a supervisory system is not reasonably designed, they need to fix it, and if they identify that customers have been harmed as a result of violative activity, we would expect the customers to be made whole.

“Extraordinary cooperation, the steps beyond that,  are typically steps that help us get to those results in a way that saves FINRA time and resources and really get the problem fixed and the customers be made whole as promptly as possible.”

In a regulatory notice filed on July 11, 2019, FINRA gave several examples of previous extraordinary cooperation including this example. 

“In September 2017, FINRA ordered a respondent firm to pay approximately $9.8 million in restitution to customers who were affected by the firm’s failure to establish and maintain a supervisory system reasonably designed to detect and prevent unsuitable short-term trading of unit investment trusts. While FINRA fined the firm $3.25 million, this reflected substantial credit for the firm’s extraordinary cooperation and remediation to customers.” FINRA stated. “The firm initiated, prior to intervention by a regulator, a firm-wide investigation to identify the scope of potentially unsuitable trades, which included the interview of a substantial number of firm personnel and the retention of an outside consultant to conduct a statistical analysis; identified harmed customers and established a plan to provide remediation; and provided substantial assistance to FINRA in its investigation.”

FINRA listed several examples of the sort of behavior which would be considered extraordinary cooperation including the following three.

  1. Engaging or conducting an independent audit or investigation that is thorough and far-reaching in scope beyond the immediate issue, with an eye toward identifying and remediating all related misconduct that may have occurred.
  2. Hiring independent consultants to ensure the adoption and implementation of improved supervisory systems, procedures and controls. 
  3. Where the root cause of a violation relates to organizational weaknesses such as where a firm dedicated inadequate staff to the supervision of a particular business line, making organizational changes by, for example, creating new supervisory positions, adjusting reporting lines or, if necessary, removing or disciplining responsible individuals, including those in supervisory roles (although personnel changes are not necessarily required to achieve extraordinary cooperation)

FINRA first issued guidance for extraordinary cooperation in 2008. 

That initial guidance stated in part.

“FINRA is issuing this guidance to apprise firms of the circumstances in which extraordinary cooperation by a firm or individual may directly influence the outcome of an investigation. The types of extraordinary cooperation by a fir m or individual that could result in cred it can be categorized as follows: (1) self -reporting before regulators are aware of the issue ; (2 ) extraordinary steps to correct deficient   systems ; (3) extraordinary remediation to customers; and (4) providing substantial assistance to FINRA’s investigation. These step s alone or taken together can be viewed in a particular case as extra ordinary cooperation and, depending on the facts and circumstances, can have an impact on FINRA ’s enforcement decisions.”

FINRA is a self-regulatory organization which formed when the regulatory arms of NYSE and NASD merged in 2007. 

Login To MyTis Comment Or Register to MyTIS

Leave a Reply

avatar
  Subscribe  
Notify of

Newsletter

Register now to receive the latest news and information for global trading industry.

Latest Articles

IIROC

Majority of Canadian Investors Surveyed Want Investment Advice From a Regulated Source

January 21, 2020 (Toronto, Ontario) –  Nearly nine in 10 (87%) of current investors and nearly seven in 10 (67%) of aspiring investors feel it’s important that investment advice come …