Reed Smith Client Alerts

On July 11, 2019, the Financial Industry Regulatory Authority (FINRA) published Regulatory Notice 19-23 (Notice 19-23) to clarify and update what firms and individuals can do to provide extraordinary cooperation worthy of influencing the outcome of an investigation. FINRA noted the need for revised guidance given the FINRA rules and policies requiring member firms to self-report and cooperate in every case.

The purpose of Notice 19-23 is threefold: (1) to clarify whether member firms are still eligible to receive credit for extraordinary cooperation despite being required to self-report their own internal conclusions of violations of law; (2) to provide further clarity on the difference between required cooperation and extraordinary cooperation; and (3) to provide additional information regarding the circumstances under which credit for extraordinary cooperation will be awarded and the nature of credit available. By doing so, FINRA is hoping to further incentivize firms and associated persons to proactively assist FINRA during investigations.

Authors: Jennifer L. Achilles John O. Lukanski

Background

Over a decade ago in 2008, FINRA published Regulatory Notice 08-70, which enumerated four factors FINRA considers when determining whether to credit firms and individuals for cooperating in a FINRA investigation. These factors are: (1) self-reporting violations; (2) correcting deficient procedures and systems; (3) providing restitution to customers; and (4) substantially assisting FINRA’s investigation. FINRA’s Sanction Guidelines also direct FINRA’s Department of Enforcement to consider the same factors. If FINRA finds that one or more of these mitigating factors are present, it may recommend a sanction that is on the lower end of the specified range in the Sanction Guidelines.

Notice 19-23 reiterates these general factors and makes clear that FINRA will continue to look to them when assessing sanctions in disciplinary matters. However, Notice 19-23 provides additional guidance regarding what counts as “extraordinary cooperation,” in light of the requirement of member firms to self-report violations in accordance with FINRA Rule 4530(b), and other FINRA rules and policies (such as Rule 8210 and FINRA’s Sanction Guidelines), which require a certain level of cooperation in every investigation.