In the wake of a court ruling last fall, the U.S. Financial Industry Regulatory Authority Inc. (FINRA) is proposing rule changes that would allow more time for firms and reps facing enforcement sanctions to seek a review of their cases.
In a decision handed down in November 2024, a U.S. district court ruled that FINRA couldn’t immediately expel a firm, Alpine Securities Corp., in an expedited proceeding without first giving the firm a chance to have the SEC review its case. Now, the SRO is proposing to amend its rules to conform to that ruling.
In a proposal filed with the SEC, the SRO proposes changing its rules so that dealer expulsions and membership cancellations don’t take effect until the firm has had an opportunity to seek SEC review —either after the deadline to apply for a review has expired, or, in cases where an appeal is filed, after the SEC has completed its review.
In a separate rule filing, FINRA is also proposing a series of changes that would give its staff and adjudicators — including hearing panels and hearing officers—the authority to grant respondents the chance to pursue a stay from the SEC, or take other legal action, before a sanction (such as a suspension or industry ban) takes effect.
In its filing with the SEC, the SRO said that certain sanctions or regulatory measures — such as suspending a firm’s operations to address operational or financial difficulties — could have “significant” short-term effects. As a result, FINRA has decided it’s appropriate for its staff and adjudicators to have the authority to briefly delay sanctions, in appropriate cases.
However, it noted there will still be situations where sanctions should take effect immediately, such as cases where the firm or a rep poses a risk to investors.
“[T]he proposed rule change is not intended to operate as a delay of such sanctions and other regulatory measures in all cases,” it said. “FINRA anticipates that there will continue to be instances in which imposed sanctions and other regulatory measures, including ones that could have significant near-term effects, take effect immediately in accordance with FINRA protocol.”
The proposed rule changes also follow the U.S. Supreme Court’s decision to deny a petition from Alpine Securities seeking to have the SRO’s enforcement case against it dismissed.
In its application for a review of the D.C. Circuit Court decision, the firm asked the court to consider “whether FINRA’s structure and asserted power to enforce the federal laws, including its exercise of unfettered prosecutorial discretion, violates the Constitution’s structural provisions.”
However, on June 2, the court declined to hear the case, ending that potential challenge to the SRO’s authority.