SEC Approves Amendments to the FINRA Rule 9550 Series Governing Expedited Proceedings
Expedited Proceedings
| Regulatory Notice | |
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Notice Type Rule Amendment |
Referenced Rules & Notices FINRA Rule 9550 Series Article VI, Section 3(b) of the FINRA By-Laws |
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Suggested Routing Compliance Legal Senior Management |
Key Topic(s) Expedited Proceedings Hearings Restitution Sanctions |
Executive Summary
The FINRA Rule 9550 Series provides a procedural mechanism for FINRA to address certain types of misconduct more quickly than would be possible using the ordinary FINRA disciplinary process. The SEC recently approved amendments that make the following changes to the rule series:
The amended rule text is set forth in Attachment A and is effective March 25, 2010.
Questions regarding this Notice should be directed to James S. Wrona, Associate Vice President and Associate General Counsel, Office of General Counsel, at (202) 728-8270.
Background & Discussion
On December 28, 2009, the SEC approved amendments to the Rule 9550 Series governing expedited proceedings.2 The changes are discussed on the following pages.
Shortening Time Periods
The Rule 9550 Series provides a procedural mechanism for FINRA to address certain types of misconduct in an accelerated timeframe. However, the rule series allows firms and associated persons to request a hearing that often results in a stay of the action. The amendments shorten the time within which a hearing must be held from 60 days after a hearing request to 30 days after the request in relation to the following FINRA rules:
In addition to modifying the timing of hearings, the amendments shorten the period before a suspension automatically turns into an expulsion or bar under Rule 9552. That rule generally allows FINRA to suspend a firm or associated person for failure to provide any information requested or required to be filed pursuant to the FINRA By-Laws or rules. Under Rule 9552, FINRA may provide written notice to such firm or person specifying the nature of the failure and stating that failure to take corrective action within 21 days after service of the notice will result in suspension. The rule previously provided that a firm or person suspended under the rule who fails to request termination of the suspension within six months is automatically expelled or barred. The recently approved amendments shorten that timeframe from six months to three months.
Adding an Expedited Procedure for Failure to Pay Restitution
The amendments modify Rule 9554, which contains expedited procedures for failures to comply with FINRA arbitration awards, to also explicitly permit FINRA to take expedited action for failures to comply with FINRA orders of restitution or FINRA settlements providing for restitution. In general, restitution is a remedy used to restore victims to their position before the wrongful conduct occurred and to compensate them for unjust losses or injury suffered as the result of another's wrongdoing.4 The SEC and FINRA have long stressed the significance of imposing restitution where an "identifiable person... has suffered a quantifiable loss as a result of a respondent's misconduct."5
Harmonizing Remedies
The amendments also harmonize the remedy for an individual's failure to comply with an arbitration award in Rule 9554 with the remedy for the same misconduct in Article VI, Section 3(b) of the FINRA By-Laws. Specifically, the amendments limit the remedy available in such actions to suspensions.
1See Exchange Act Release No. 61242 (December 28, 2009), 75 FR 167 (January 4, 2010) (Order Approving File No. SR-FINRA-2009-076).
2Id.
3 FINRA implemented the changes regarding the timing of the hearings by amending Rule 9559, which contains the hearing provisions for the Rule 9550 Series. FINRA also made conforming changes to Rule 9559 regarding the pre-hearing exchange of documents between the parties to the expedited proceeding.
4See David Joseph Dambro, 51 S.E.C. 513, 518 (1993).
5 FINRA Sanction Guidelines, at 4; see also Dambro, 51 S.E.C. at 518.
ATTACHMENT A
Text of Amended Rules
New language is underlined; deletions are in brackets.
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9550. Expedited Proceedings
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9552. Failure to Provide Information or Keep Information Current
A member or person who is suspended under this Rule and fails to request termination of the suspension within three [six] months of issuance of the original notice of suspension will automatically be expelled or barred.
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9554. Failure to Comply with an Arbitration Award or Related Settlement or an Order of Restitution or Settlement Providing for Restitution
If a member, person associated with a member or person subject to FINRA's jurisdiction fails to comply with an arbitration award or a settlement agreement related to an arbitration or mediation under Article VI, Section 3 of the FINRA By-Laws or a FINRA order of restitution or FINRA settlement agreement providing for restitution, FINRA staff may provide written notice to such member or person stating that the failure to comply within 21 days of service of the notice will result in a suspension or cancellation of membership or a suspension [or bar] from associating with any member.
FINRA staff shall serve the member or person with such notice in accordance with Rule 9134. A copy of a notice under this Rule that is served on a person associated with a member also shall be served on such member.
The suspension[,] or cancellation [or bar] referenced in a notice issued and served under this Rule shall become effective 21 days after service of the notice, unless stayed by a request for a hearing pursuant to Rule 9559.
If a member or person does not timely request a hearing, the suspension[,] or cancellation [or bar] specified in the notice shall become effective 21 days after the service of the notice and the notice shall constitute final FINRA action.
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9559. Hearing Procedures for Expedited Proceedings Under the Rule 9550 Series
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