U.S. Securities Regulator to Update Cooperation Credit Policy

The U.S. Financial Industry Regulatory Authority will clarify the steps brokerages must take to receive credit for cooperating during investigations of suspected regulatory violations, an industry official said Monday.

Susan Schroeder, FINRA’s executive vice president and head of enforcement, disclosed the regulator’s plan to update its cooperation-credit guidelines at an industry conference in New York, and described the agency’s ongoing effort to explain the reasons behind individual enforcement actions more often.

The original guidance, issued in November 2008, states that firms subject to penalties can receive credit for “extraordinary steps,” such as self-reporting their violations, correcting deficiencies, compensating clients and assisting regulators during any related investigation.

FINRA tightened the guidance three years later by requiring brokerages to self-disclose significant compliance failures within 30 days after the firm learned or should have learned of them.

Schroeder did not further specify how FINRA would update the guidelines, and a spokesperson for the regulator declined to comment.

Schroeder separately reiterated FINRA’s determination to publish more details from enforcement actions and justify its penalties, especially after bringing cases against individuals.

Her comments reflect similar statements made by FINRA leadership last year, as well as industry concern that AML expectations for brokerages and other entities regulated by FINRA are less clear than those for banks and money services businesses.

“I worry that past settlement documents have not always clearly identified the legal framework supporting our conclusions,” Schroeder said Monday. “This is particularly important in the anti-money laundering space, where we get questions about individual respondents and why they were charged.”

Schroeder’s speech at the conference also suggests that FINRA may move away from penalizing brokerdealers for minor AML violations towards focusing primarily on cases that carry a substantial risk or harm to securities markets, according to Bao Nguyen, a former FINRA examiner.

But firms most likely will refrain from disclosing additional violations until they see examples of enforcement actions in which a business avoided a substantial penalty for self-reporting, said Nguyen, now a principal of risk advisory services at Kaufman Rossin.