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Difficulty: MediumSelf-Regulatory Organizations (SROs) and FINRA

Following a formal disciplinary proceeding, FINRA determines that a registered representative at a member firm engaged in unauthorized trading in customer accounts. Which of the following sanctions is within FINRA's disciplinary authority to impose on the registered representative?

  1. Barring the registered representative from associating with any member firm in any capacityAnswer
  2. B
    Sentencing the registered representative to a federal prison term of up to two years
  3. C
    Revoking the commercial banking charter of the representative's parent bank institution
  4. D
    Mandating that the representative execute all future retail transactions strictly as a principal dealer

Answer

Barring the registered representative from associating with any FINRA member firm in any capacity.
As a self-regulatory organization (SRO) governed under SEC oversight, FINRA has the administrative disciplinary authority to censure, fine, suspend, or permanently bar an associated person from associating with any member firm for violations of securities rules.

Step-by-Step Solution

1
Identify the nature and scope of FINRA's authority as a Self-Regulatory Organization (SRO).
FINRA is authorized by the SEC to regulate member broker-dealers and their associated persons.
SRO jurisdiction is limited to membership administration, industry rule enforcement, and administrative discipline within the securities brokerage industry.
2
Evaluate the permissible sanctions FINRA can issue against associated persons.
Sanctions include censures, fines, suspensions, cancellations of registration, and permanent bars from associating with member firms.
Barring an individual directly addresses industry compliance by removing non-compliant professionals from FINRA-regulated entities.
3
Distinguish SRO administrative powers from criminal prosecution and banking regulation.
Imprisonment requires criminal court proceedings, and bank charter regulation rests with banking regulators (e.g., FDIC, OCC, Federal Reserve).
FINRA lacks judicial criminal jurisdiction and authority over commercial banking laws.

Key Concept

FINRA Disciplinary Sanctions and SRO Jurisdiction Boundaries
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Topics

Self-Regulatory Organizations (SROs) and FINRA

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