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The Financial Industry Regulatory Authority updated its sanctions guide on Monday to make sure its in-house judges consider whether accused broker-dealers abused their influence with old and vulnerable clients and to expand on how to adjust penalties when other regulators have imposed sanctions, among other changes.

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FINRA’s Judges To Review Other Penalties, Harm To Elderly

By Jack Newsham of Law360.com

The Financial Industry Regulatory Authority updated its sanctions guide on Monday to make sure its in-house judges consider whether accused broker-dealers abused their influence with old and vulnerable clients and to expand on how to adjust penalties when other regulators have imposed sanctions, among other changes.

In all cases, the self-regulatory group’s hearing officers are now required to consider whether a respondent exercised “undue influence” over a customer, a measure meant to protect seniors that had previously been applied on a case-by-case basis. The move comes a few months after FINRA sought government approval for a change to its rules that was also meant to protect elderly investors.

“This new consideration reaffirms that financial exploitation of senior and other vulnerable customers should result in strong sanctions,” the organization said.

FINRA also expanded a one-line section on mitigating for other enforcers’ penalties into a lengthy “general principle” with more nuance. It notes that another penalty can only be mitigating when it is based on the same facts and has been satisfied, and says adjudicators must keep in mind the paramount importance of protecting the investing public.

The changes to the self-regulator’s penalty guide, which go into effect immediately, also create three new guidelines that apply to specific kinds of rule-breaking. What FINRA calls “systemic supervisory failures and firm wide supervisory problems” will be scrutinized differently and punished more harshly than supervisory failures on a smaller scale. Another guideline for violations by brokers who borrow and lend to their customers has been written, and different principles will now apply to short interest reporting and short sale violations.

Other changes include an increase in penalties for selling unregistered securities where a high volume of penny stock transactions are involved, as well as longer suspensions for broker-dealers who are found to have engaged in unauthorized transactions or made dubious trades on a customer account primarily to generate commissions and fees, a practice known as “churning.”

The FINRA Sanction Guidelines were last updated in 2015, when FINRA cracked down on fraud and urged expulsions and industry bars for big-time violators. The organization’s National Adjudicatory Council, a group of 15 people that hears appeals of decisions by hearing officers, made the changes as part of a periodic review it conducts without taking outside comments.

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The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust.

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