In the past few weeks, FINRA published several Regulatory Notices, two of which should be of interest to all broker-dealers. Regulatory Notice 13-27 discusses recently approved amendments to the oddly named “Publicity Rule” concerning release of FINRA disciplinary complaints and decisions, statutory disqualification decisions, and other information. Regulatory Notice 13-25 is a joint advisory issued with the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”), discussing business continuity plans and “best practices and lessons learned” following the wide disruption to the markets caused by Hurricane Sandy in October 2012.
The Publicity Rule
FINRA has amended Rule 8313 (the “Publicity Rule”) to increase transparency into the FINRA decision-making process and to provide additional guidance to member firms in their compliance efforts. Among other things, the amended Rule aligns FINRA’s periodic publication of disciplinary information with the information already publicly available on BrokerCheck and with the SEC’s practice of disclosing information on its website. The amendments take effect on December 16, 2013.1
Disciplinary Actions and Complaints
The amendments to Rule 8313 eliminate the disclosure thresholds that previously limited disclosure of disciplinary actions to those resulting in sanctions over $10,000. Once the amendments become effective, all disciplinary complaints and decisions will be released in unredacted form, regardless of the size of the sanction, subject to limited exceptions at the discretion of FINRA and its staff, as described below. In addition, the removal of dollar thresholds will allow FINRA to notify its membership and the press when any disciplinary decision has been appealed to the SEC, including information regarding whether sanctions have been stayed during the appeal. These changes are intended to provide firms with greater access to information when evaluating their own compliance concerns and educating their associated persons, and also to better inform firms that are facing allegations of rule violations about existing disciplinary actions (for instance, the underlying facts and sanctions imposed). FINRA notes that these changes to Rule 8313 are less significant than they might have been in years past because disciplinary information now is publicly available on BrokerCheck, even when the decisions themselves are not published.
The amendments also clarify that when FINRA has published a disciplinary complaint that subsequently is dismissed or withdrawn, FINRA will publish with the complaint the order dismissing or withdrawing the complaint. FINRA states that this is consistent with the SEC’s practice.
Other Amendments of Note
The amended Publicity Rule provides for the release of unredacted copies of, among other things, statutory disqualification decisions and notifications, including the identities of the statutorily disqualified individuals or member firms. This is a marked change from current FINRA rules that provide for the release of redacted versions of these materials.
The changes also address the release of expedited proceeding decisions for certain types of misconduct, like the failure to pay fees or meet eligibility requirements, and summary actions for failure to pay fines or monetary sanctions. The amendments consolidate the publication standards for these decisions and codify the current FINRA practice of releasing decisions relating to summary suspensions or expulsions for failure to pay fines. While these rule changes do not change FINRA practice, they update the Publicity Rule to comport with existing practice.
Publication of decisions from Membership and Continuing Membership Application appeals to the National Adjudicatory Council and FINRA board will now be governed by the Publicity Rule. These generally will continue to be published in redacted form, although the National Adjudicatory Council and the FINRA Board both will have the authority to direct the publication of unredacted appeals decisions.
In addition, the amendments permit the release of exemption decisions and “any other decision,” although there is no requirement to publish them.
Rule 8313, as amended, includes a new provision that permits FINRA, notwithstanding the general inclination towards publication of unredacted materials, to redact information, on a case-by-case basis, if there are personal safety or privacy concerns that outweigh the investor protection concerns that the Publicity Rule generally supports. Therefore, materials that contain confidential customer information, or that might raise significant risk of identity theft or concerns about personal safety or privacy, may be redacted. This is consistent with FINRA’s current approach in releasing information in BrokerCheck.
Business Continuity Planning
Regulatory Notice 13-25 (the “Joint Notice”), is a joint advisory issued with the SEC and CFTC regarding business continuity plans (“BCP”). The considerations that are presented in this notice are based on conversations between the regulators and leading market participants regarding how the firms executed their BCPs in the aftermath of Hurricane Sandy.2
The following is a list of the major topics that the Notice encourages FINRA member firms to consider in evaluating their BCPs.
Widespread Disruption Considerations:
Alternative Locations Considerations:
Vendor Relationship Considerations:
Telecommunications Services and Technology Considerations:
Communication Plans Considerations:
Regulatory and Compliance Considerations:
Review and Testing Considerations:
The Joint Notice does not suggest that any of the firms contacted had inadequate BCPs or that the regulators identified any particular problems with firms’ actions to address the impact of the storm. That said, having provided this new guidance based on the first-hand experiences afforded by Hurricane Sandy, such as fuel shortages, telecommunications down from multiple carriers, transportation snarls, and both New York City and significant parts of New Jersey impacted, the regulators likely will scrutinize firms’ BCPs and disaster recovery plans closely in the future.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:Kroll-Amy
1 The text of the amendments are found here: http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/industry/p326314.pdf.
2 Regulatory Notice 13-25, Business Continuity Planning (August 2013). The SEC Office of Compliance Inspections and Examinations at the same time issued a National Examinations Program Risk Alert, “SEC Examinations of Business Continuity Plans of Certain Advisers Following Operational Disruptions Caused by Weather-Related Events Last Year” (August 27, 2013).
This article was originally published by Bingham McCutchen LLP.