FINRA recently published an independent review of its Enforcement Program containing 24 recommendations intended to make the enforcement process more transparent, efficient and predictable while preserving investor protection and market integrity. FINRA has publicly committed to evaluating and implementing many of these recommendations as part of its FINRA Forward initiative. Importantly, the report emphasizes earlier engagement between FINRA and member firms before the issuance of a Wells Notice, which is FINRA's formal notification that its Enforcement Department is considering recommending disciplinary action. The notice provides the recipient with an opportunity to respond before charges are filed.
The report recommends significant enhancements to the enforcement process, including earlier engagement with firms, greater transparency regarding enforcement decisions and workflows, expanded procedural protections during the Wells process, reforms to FINRA Rule 8210 information requests, increased recognition of cooperation and remediation efforts, and additional opportunities to resolve technical compliance matters without formal disciplinary action. Although these recommendations are not yet binding, they provide valuable insight into the direction of FINRA's enforcement program and underscore the importance of proactive compliance and early engagement with regulators.
The most important takeaway for member firms is to engage experienced counsel as early as possible. Many enforcement matters begin long before a Wells Notice or formal disciplinary action. Examination findings, Rule 8210 requests, requests for voluntary information, referrals from examinations and other communications from FINRA may represent the beginning of an enforcement matter, or, at the very least, create issues that later develop into one. Early involvement can help shape communications with FINRA, preserve important legal and strategic considerations, facilitate remediation where appropriate and, in many cases, improve the likelihood of an efficient and favorable resolution.
Our Funds and Investment Services Practice Group regularly assists clients with:
- Navigating FINRA and SEC examinations;
- Responding to examination findings and deficiency letters;
- Developing strategies for Rule 8210 requests and other FINRA information demands;
- Advising during investigations and other regulatory inquiries before they develop into enforcement actions;
- Evaluating remediation, self-reporting and cooperation opportunities; and
- Representing firms and associated persons throughout Wells matters, settlements and disciplinary proceedings.
If your firm receives an examination finding, a Rule 8210 request, an inquiry from FINRA staff or any other communication that could lead to an enforcement matter, we encourage you to contact us promptly. Early involvement often provides the greatest opportunity to protect the firm's interests, address regulatory concerns effectively and position the matter for the best possible outcome.
