Following a 2024 U.S. district court ruling in favor of a broker-dealer challenging FINRA’s expedited enforcement process, FINRA has proposed amendments to its enforcement rules that would delay the effectiveness of certain sanctions until a firm or registered representative has had the opportunity to seek SEC review.
Previously, FINRA could immediately enforce expulsions or membership cancellations through expedited proceedings. However, the court ruled this approach denied firms the right to appeal to the SEC before sanctions took effect. In response, FINRA submitted two separate proposals to the SEC that would bring its enforcement framework in line with the ruling:
- Delayed Effectiveness of Expulsions/Cancellations – Expulsions and membership cancellations would no longer take effect immediately. Instead, they would be delayed until either the SEC review window has closed or, if appealed, the SEC has completed its review.
- Discretionary Delays for Sanctions – FINRA is also proposing that its staff and adjudicators be granted authority to delay the effectiveness of other sanctions (e.g., suspensions, industry bans) to allow time for legal action or a stay request.
FINRA emphasized these changes are meant to provide due process without hindering the ability to act swiftly when investor protection is at stake. Immediate enforcement would still be permitted in high-risk situations.
These proposals come shortly after the U.S. Supreme Court declined to hear a challenge to FINRA’s authority, leaving intact a lower court decision affirming the regulator’s enforcement powers.
What This Means for Firms:
With FINRA proposing added structure around enforcement timing, now is a good time for firms to evaluate how they respond to regulatory actions. Ensuring your internal processes are well-documented, your teams are trained on escalation protocols, and your firm can act swiftly in high-stakes scenarios is essential to maintaining a strong compliance posture.
