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What happens if FINRA accuses us of violating the customer protection rule?

by | Jan 28, 2022 | Securities Litigation

The Financial Industry Regulatory Authority (FINRA) works to hold brokers accountable to their customers. One way they achieve this goal is by enforcing the rules and regulations issued by the United States Securities and Exchange Commission (SEC). But what happens if FINRA accuses your firm of a violation? The regulatory authority could investigate and, depending on the findings, fine your firm millions for the violation.

Case in point: Credit Suisse Securities faces millions in FINRA fine

FINRA states the firm failed to properly maintain over 18 billion customer brokerage records from 1997 through 2020 and that the firm failed to provide proper disclosures about potential conflicts of interest to clients or omitted required disclosures from 2006 through 2017. Credit Suisse states the problem was the result of coding errors but chose to accept the regulatory body’s findings without admitting or denial guilt and settle the issue. The firm will pay a $9 million fine and review its supervisory systems and procedures to better ensure future compliance.

FINRA executive vice president and head of enforcement, Jessica Hopper, stated other firms should see this case as a reminder to ensure they are protecting customer funds from improper use.

Take home lesson: Review firm practices on a regular basis

In this case the rule at the center of the issue was the SEC’s customer protection rule. This rule keeps firms from using customers’ securities for their own purposes. The case serves as a reminder of the importance to conduct regular internal audits to better ensure compliance. Catching any one of these issues before it goes on for decades, as was the case above, can save firms millions in penalties and the reputational damage that can accompany allegations of a violation.

The case also shows firms that an investigation is serious. As such, those who face similar allegations are wise to proactively seek legal counsel to review their options.

Commercial LitigationSecurities LitigationWhat happens if FINRA accuses us of violating the customer protection rule?
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