Understanding FINRA’s Settlement Agreement: Acceptance, Waiver, and Consent (AWC)
FINRA, which stands for the Financial Industry Regulatory Authority, is a self-regulatory organization in the United States that plays a critical role in regulating the securities industry. It’s a non-governmental organization that oversees brokers and brokerage firms. The following is a rundown on what an AWC is and why it may be necessary to have legal representation before you enter into one.
In cases where individuals or firms find themselves in violation of FINRA rules and regulations, FINRA possesses the authority to impose penalties, such as fines, suspensions, or industry bans. Depending on the nature of the violation, when it was discovered, and by whom, individuals facing such circumstances typically confront two choices:
- Proceeding to a formal enforcement hearing, prompted by a formal FINRA complaint against them.
- Opting to sign an Acceptance, Waiver, and Consent agreement, commonly known as an “AWC.”
What Does an AWC Involve?
While the concept of a formal enforcement hearing is relatively straightforward, it’s essential to understand what precisely an AWC entails.
An AWC represents a settlement agreement reached between the individual or firm and FINRA’s Enforcement Division. The AWC generally encompasses details regarding the events and circumstances leading up to FINRA’s findings and cites the specific FINRA rules believed to have been violated by the individual or firm. It also delineates the agreed-upon penalties that form a part of the settlement. These penalties can include a cease-and-desist order for the alleged wrongdoing, often combined with a fine, suspension, industry ban, or a combination thereof.
In essence, by signing the AWC, individuals or firms are:
- Acknowledging the stated violations.
- Forfeiting their right to a formal hearing and any opportunity to appeal to the National Adjudicatory Council (“NAC”).
- Consenting to the specified penalties.
Do I need a Securities Attorney?
Before deciding whether entering into an AWC is in one’s best interest, it is important to involve legal counsel. Experienced securities employment attorneys work with FINRA’s enforcement counsel to negotiate not only the terms of the settlement but also to ensure that the language used in the AWC accurately reflects the facts and circumstances. Importantly, any negotiated settlement must first gain approval from FINRA’s senior enforcement staff and subsequently from the NAC.
At any of these stages, FINRA reserves the right to refuse the proposed settlement. In such a scenario, renegotiation within the NAC’s established guidelines becomes necessary. Individuals or firms also have the option to reject the AWC, but this would lead to their participation as respondents in a formal enforcement hearing. Refusing both the AWC and the hearing would likely result in a permanent ban from the financial industry for failing to cooperate.
A formal hearing conducted by FINRA operates like a court trial. It is presided over by a staff hearing officer from FINRA’s Office of Hearing Officers (OHO) and two industry panelists who assess testimony, evaluate evidence, and issue a judgment that can significantly impact the future within the financial industry. The hearing process resembles arbitration, with somewhat more flexible rules of evidence.
An individual or firm signing an AWC does not admit or deny guilt. Instead, the AWC clarifies that it is being accepted solely for the purpose of settling the dispute. It’s worth noting that a summary of the AWC’s key provisions is made public on an individual’s Form U-4 and cannot be expunged from their record. See What is a Broker CRD Number?
FINRA Arbitration Attorneys – The White Law Group
Upon signing an AWC, individuals or firms are prohibited from making any public statements or regulatory filings that deny any allegations in the AWC or create the impression that the AWC lacks a factual basis.
In exchange, FINRA commits, as part of the AWC, not to pursue further actions alleging violations based on the same factual findings. However, it’s important to scrutinize the language carefully, as any alteration in the facts can trigger new actions by FINRA.
For more in-depth information about AWCs and help in making the decision to enter into an AWC, you can request a consultation with one of our experienced FINRA Arbitration attorneys. For a free consultation, please call our offices at 888-637-5510.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Seattle, Washington. For more information on The White Law Group and its representation of financial advisors, visit https://whitesecuritieslaw.com.
Last modified: October 19, 2023