FINRA has issued additional guidance concerning a member firm’s obligations to report regulatory violations and customer complaints under Rule 4530.  FINRA recommends that all firms adopt policies and procedures that (a) clearly identify the person responsible for determining whether a reportable event has occurred, (b) provides a protocol for escalating violations, and (c) provides a protocol for reporting.  FINRA explains that a firm needs to report only when (i) it concludes (or reasonably should have concluded) that a regulatory violation has occurred and (ii) the violation has widespread impact or results from a systemic or repeated failure.  FINRA notes that text messages and tweets should be considered written customer complaints.  FINRA also offers guidance on determining the violations to be reported, affiliation issues, and how to handle issues with former reps. 

 

OUR TAKE: This Rule includes a great deal of subjective decision-making about which violations must be reported.  Firms should centralize the function to at least ensure consistency.