FINRA Publishes Report of Recommendations To Improve Enforcement Program

In June, FINRA published a report (the Report) containing recommendations to improve its enforcement function. The 25-page Report is part of FINRA’s broader FINRA Forward initiative, which Paul Hastings described in a previous client alert.

This alert focuses on recommendations that, if adopted, could directly and significantly affect member firms when responding to FINRA information requests, defending against alleged FINRA rule violations, or seeking to resolve enforcement actions. Other recommendations not addressed in this alert likely would have a less direct — but still positive — effect on FINRA members. These include various recommendations related to executive-level involvement in the enforcement program, interdepartmental coordination, matter tracking, training, and periodic reviews.

Background of the Report

In July 2025, FINRA announced that it had engaged two outside experts to evaluate FINRA’s enforcement program and identify opportunities for “meaningful, common-sense improvements.” The scope of the experts’ evaluation included considering “governance, policies, processes, and communications, as well as how FINRA enforcement works with other FINRA departments and federal and state regulators.” The experts obtained comments and suggestions from a broad range of interested stakeholders, including FINRA leadership, FINRA member firms, trade associations, and securities enforcement practitioners.

The experts’ Report contains 24 recommendations for improving FINRA’s enforcement program, organized into eight subject areas, including: (1) management, governance, and oversight; (2) diverse input, perspectives, and expertise; (3) due process and fairness; (4) transparency; (5) information requests and testimony; (6) coordination; (7) timeliness and efficiency; (8) settlements, resolution, and advancing FINRA’s mission; and (8) change management, assurance, and continuous improvement.

Robert Cook, FINRA’s President and CEO, stated that FINRA “will consider the recommendations individually and holistically” but “it will take time to address them in a thoughtful and comprehensive manner.”

Top 10 Recommendations in the Report

Below are the top 10 recommendations in the Report that member firms should be aware of:

1. Member Firm Engagement at the Time of Referral (Recommendation 6). The Report recommends that FINRA member firms be given the opportunity for “meaningful engagement” at the time of referral to enforcement. In particular, FINRA should inform respondents “in reasonable detail” of the nature of the staff’s concerns and afford respondents a “meaningful opportunity” to present their views and engage on the merits of the basis for the referral.
2. Wells Process Improvements (Recommendation 7). The Report recommends that FINRA “update, formalize, and publicly publish enhanced Wells procedures” to “bolster due process, transparency, and fairness.” (General information about the Wells process is available here.) Several of the recommendations focus on transparency and engagement with potential respondents. For example, the Report recommends that FINRA encourage its staff to offer “reverse proffers” and adopt other “open jacket” practices in connection with a Wells call to inform the potential respondents of FINRA’s views of the facts, the law, and the rationale for an enforcement action. The Report also recommends that FINRA make all on-the-record testimony available to potential respondents and their counsel immediately upon communication of a Wells notice. Finally, the Report recommends that FINRA invite post-Wells meetings with enforcement leadership and during that meeting explain “in appropriate detail” the rationale behind any final decision to proceed with the enforcement action, the sanctions and remedial measures FINRA is seeking, and the extent to which cooperation credit was awarded or denied.
3. Publication of an Enforcement Manual (Recommendation 8). The Report recommends that FINRA revise and publish an updated enforcement manual to provide transparency about the enforcement process generally and promote consistency and accountability. This recommendation specifically identified the SEC’s recently-revised Enforcement Manual (discussed in this prior client alert) as a “useful reference.”
4. Greater Access to Complaints, Decisions, Settlements, and Other Publicly Available Disciplinary Materials (Recommendation 10). The Report recommends that FINRA provide greater access to disciplinary materials by making them available on commonly used third-party legal research platforms. At present, such materials are available through FINRA’s Disciplinary Actions Online Database, but that database lacks many of the research features available through third-party platforms such as Westlaw or LexisNexis.
5. Improvement of Information Request Processes and Practices, Especially as to Rule 8210, and a Forum for Challenges to 8210 Information Requests (Recommendations 11 and 12). The Report contains several recommendations related to FINRA’s Rule 8210 information request process. These recommendations focus primarily on enhancing oversight of the information gathering process and encouraging engagement with member firms. The Report recommends that information requests be approved by “an individual with an appropriate level of seniority,” that FINRA engage in “pre-issuance” consultation with member firms to discuss the objectives, scope, and timing of requests, and that member firms be afforded a reasonable amount of time to respond to information requests, taking into consideration the complexity of the requests. (FINRA already implemented pre-issuance consultations, as described in our prior client alert.) Significantly, the Report recommends that FINRA adopt measures to prevent FINRA staff from using Rule 8210 information requests for “inappropriate practices,” such as requests framed as interrogatories or requests for admission, or requests that implicate attorney-client privilege and work product protections. As an additional measure of oversight and accountability, the Report recommends that FINRA establish a process — involving a neutral decision-maker — for member firms to challenge Rule 8210 requests that member firms believe are inappropriately broad or burdensome.
6. Minimizing Enforcement Duplication (Recommendation 16). The Report acknowledges that certain conduct by member firms also may draw the attention of the SEC, the CFTC, the DOJ, or FinCEN. To avoid duplicative enforcement in these situations, the Report recommends that FINRA evaluate whether FINRA enforcement would provide any “additional benefit” (such as a remedy that promotes enhanced compliance) that would distinguish FINRA’s enforcement efforts from those of other government authorities. The Report recommends FINRA avoid enforcement efforts that do not “sufficiently advance” FINRA’s objectives as a self-regulatory organization beyond what other regulators can accomplish through their enforcement efforts.
7. Further Encouragement of Rapid Detection and Resolution Pre-Referral to Enforcement, and Expedited Resolution of Technical Regulatory Matters Post-Referral to Enforcement (Recommendations 19 and 20). The Report encourages FINRA to expand its “Rapid Remediation” program, which serves as an alternative to formal enforcement in certain circumstances and allows member firms to address deficiencies promptly without resorting to enforcement. The Report recommends that FINRA consider additional programs for resolving matters outside the formal enforcement context. Relatedly, the Report recommends that FINRA evaluate ways to streamline the resolution of enforcement matters that involve technical violations where investors were not harmed and where the member firm has remediated the underlying compliance issue or there was an honest mistake and a good faith effort to comply.
8. Additional Pre-Resolution Engagement on Remediation (Recommendation 21). The Report recommends that FINRA engage with member firms regarding whether a firm’s activities, practices, policies, and procedures meet FINRA requirements, especially when a member firm asks FINRA for its views. The Report encourages FINRA to “explain its expectation to the firm in the interest of transparency and enabling constructive dialogue.” This recommendation, if adopted, could have the beneficial effect of giving firms a measure of comfort that their remedial efforts sufficiently have addressed FINRA’s concerns.
9. Credit for Meaningful Cooperation (Recommendation 22). The Report recommends that FINRA revise its 2019 guidance on credit for cooperation to state that member firms and individuals may receive cooperation credit in a variety of ways. The Report recommends, for example, that cooperation should not have to be “extraordinary” to qualify for credit and that cooperation credit should not be precluded because of Rule 4530(b)’s reporting obligation. The Report also recommends that FINRA transparently describe the nature and degree of cooperation credit that is awarded in exchange for different forms of cooperation. Relatedly, the Report recommends that Acceptance, Waiver and Consent letters (AWCs) contain more extensive and transparent explanations regarding the amount of cooperation credit awarded and the reasons for the credit.
10. Other Reforms Addressing the Resolution of Enforcement Actions (Recommendation 23). The Report contains six additional recommendations related to the resolution of enforcement matters. Most significantly, the Report recommends that FINRA permit member firms to submit draft membership continuation applications on Form MC-400A in advance of settlements with the SEC, CFTC, DOJ, or state regulators so that the member firm can better understand the collateral consequences of a potential settlement with other governmental authorities. The Report recommends that FINRA refrain from including Rule 2010 “tag along” charges to enforcement actions based solely on the violation of another FINRA rule that does not implicate fraud or unethical conduct. With respect to sanctions in settled matters, the Report recommends that FINRA provide firms (i) an explanation of the precedent it has relied on to arrive at the sanction amount; (ii) a calculation of the number of alleged violations used to determine the sanction amount; and (iii) the factors FINRA considered and how it considered them to apply FINRA’s Sanction Guidelines. The Report recommends that AWCs contain “appropriate and balanced context” about the conduct at issue, including sufficient context to understand what happened and why the sanctions imposed are appropriate, such as by allowing respondents to include a Mitigation Statement with the published AWC. The Report also recommends that FINRA expand its Minor Rule Violation Plan to apply to additional rules and matters involving higher fine amounts to facilitate resolution of cases that do not involve egregious behavior, intentional misconduct, or investor harm. With respect to Cautionary Action Letters, the Report recommends that FINRA discuss such letters with member firms before they are issued and afford member firms a meaningful opportunity to respond to the proposed terms of the letter (FINRA adopted this recommendation, as described in our prior alert).

Looking Ahead

The FINRA Forward initiative already has resulted in meaningful changes to FINRA’s enforcement program. Even before the Report, FINRA had begun to take steps to enhance its enforcement program, as described in our prior client alert. Since then, FINRA has taken additional recent action to streamline and coordinate its regulatory efforts, including by consolidating its Member Supervision, Market Oversight, and Enforcement functions into a single Regulatory Operations group and creating eleven enforcement specialization areas.

It remains to be seen how much of the Report FINRA will adopt and when any related changes will take effect. Still, the Report contains many recommendations that, if adopted, would be beneficial to member firms. Member firms generally should welcome the Report’s emphasis on transparency, engagement, and due process.