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FINRA Revises its Sanction Guidelines on Churning


FINRA Tightens Sanctions on Churning

In April 2017, the Financial Industry Regulatory Authority announced that it had revised its sanction guidelines for violations of its rules. The revisions include changes relating to rule violations that involve churning or unauthorized transactions.

What is Churning?

As we have explained, churning is excessive trading by a broker in a client’s account largely to generate commissions. It is an unethical and illegal practice that violates SEC rules and securities laws.

In the financial services industry, churning is a very serious offense. FINRA and the SEC have been working to minimize this occurrence. The most basic churning comes from excessive trading by a broker to generate commissions. Most investors rely on their broker to do what is in their best interest, so some unethical brokers may take advantage of that trust.

Brokers must justify the reason for making a commissionable trade and how it benefits the client. If a client has excessive commissions with no noticeable gains in the portfolio, churning may have occurred.

FINRA’s Revised Rules

According to FINRA’s revised rules, the low end of the suspension range for an individual respondent who engages in churning or unauthorized transactions increased from 10 business days to one month.

The high end of the suspension range for churning and unauthorized transactions for an individual respondent has increased from one year to two years; in addition, the revised guidelines for churning or unauthorized transactions recommend that FINRA adjudicators strongly consider imposing a bar from the industry on an individual respondent when the respondent acted recklessly or intentionally.

This change reflects FINRA’s 2017 exam priorities letter and its emphasis on excessive trading.

Recovery Options

Brokers have a fiduciary duty to make investment recommendations that are consistent with the clients net worth, investment experience and objectives. Risk tolerance, age, and liquidity needs also need to be considered. Brokers are prohibited from engaging in underhanded businesses practice that violate securities laws and regulations.

When brokers abuse client accounts and conduct transactions that violate securities laws, the brokerage firm they are working with may be liable for investment losses. Brokerage firms that fail to monitor the business activities of their employees may be liable for investment losses due to negligent supervision for the misconduct of their employees.

Free Consultation

If you believe that you have been the victim of churning, please call the securities attorneys of The White Law Group at 888- 637-5510 for a free consultation.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.

For more information on The White Law Group, visit https://whitesecuritieslaw.com.



Tags: , Last modified: March 18, 2024