FINRA Enforcement Review: Progress Toward Greater Fairness and Certainty

When FINRA commissioned an outside review of its enforcement program, we saw an important opportunity to make sure our members had a voice in the process. 

To that end, FSI members met directly with the outside reviewers and described where FINRA’s enforcement practices have created challenges for their firms. We followed those conversations with a letter calling for stronger procedural safeguards and offering recommendations to prevent regulation by enforcement. 

The final report indicates that our members’ views were heard. Its 25 recommendations include several that closely align with the changes they urged FINRA to consider. Some highlights include:

Setting reasonable limits on investigations 

Some FINRA investigations remain open for years. By the time a firm receives a request, it may be asked to locate records or explain activity from a decade ago. As a result, firms can face significant difficulty responding fully and accurately. 

Our members urged FINRA to move investigations along more promptly and establish reasonable limits on how far back it can reach. In response, the report recommends that FINRA improve how it tracks the age and progress of enforcement matters. It further calls on FINRA to consider a limitations period, with five years proposed as a starting point. 

Together, those changes would bring greater discipline to the process. Firms would have more certainty, while investigations would be less likely to linger indefinitely.

Narrowing requests for information 

Additionally, our members described receiving requests for information that were overly broad or repetitive or that appeared to be searching for potential violations without a clear focus. 

We advocated for FINRA to consult with firms about the scope of certain requests before issuing them. These conversations could clarify what FINRA actually needs and spare firms from gathering large amounts of material that may have little relevance to the matter under review.

The report responds to that broader issue in several ways. It recommends: 

• Consulting with firms before issuing certain requests for information.  
• Creating a process for firms to challenge requests they consider inappropriate.  
• Improving internal tracking so different FINRA teams do not repeatedly ask a firm for the same material.  

These changes would make the information-gathering process more focused and efficient, while giving firms a clear avenue to question requests they believe are unreasonable.

Hearing from firms before making a referral 

Further, our members raised a related issue involving what happens before a matter reaches FINRA’s Enforcement Department. We therefore asked FINRA to create a more structured process for firms to provide context before a referral is made. 

At the same time, our members emphasized that offering an explanation or questioning a preliminary conclusion should not be treated as a failure to cooperate. The report addresses both points by recommending that firms receive written notice of a referral and a meaningful opportunity to present their views on the merits to an appropriate senior FINRA official. 

That added step could prevent misunderstandings or incomplete facts from pushing a matter unnecessarily further into the enforcement process.

Building momentum against regulation by enforcement 

Beyond these procedural changes, the review provides support for one of our longstanding priorities – preventing regulation by enforcement. 

Notably, the report reinforces that principle by stating that regulation by enforcement “should be avoided.” FINRA President and CEO Robert Cook further acknowledges that ambiguity surrounding regulatory requirements may warrant rulemaking or guidance rather than disciplinary action.  

As a result, we believe FSI now has a stronger foundation for continuing to advocate for clearer expectations and greater certainty for firms and financial advisors in this area. 

The focus now shifts to implementation 

In our view, the report is an encouraging step, particularly because it addresses several of the issues our members brought directly to the reviewers. However, recommendations alone will not change the enforcement process. Their value will ultimately depend on how FINRA puts them into practice. 

As FINRA considers its next steps, we will remain closely engaged. More broadly, this review shows the value of bringing our members’ experiences directly into the regulatory process. We will continue drawing on those experiences as we press for an enforcement program that is more consistent, predictable and workable for the firms and financial advisors we represent.