Recent settlements continue to demonstrate that FINRA means business when they request documents as part of an examination or investigation. As a Self-Regulatory Organization, FINRA does not have subpoena power, so they must rely on Rule 8210 to compel those who are subject to its jurisdiction to provide testimony and documents when requested. A failure to comply with a request under Rule 8210 could lead to a disciplinary action up to and including an individual being barred. During my time at FINRA, the most common reason for being barred was a failure to respond to an 8210 request. Therefore, it is critical that you take these requests seriously and respond completely and timely.
FINRA’s jurisdiction over documents is not unlimited, but it is very broad. The rule applies to books, records and accounts that the broker-dealer or its associated persons make or keep relating to its operation as a broker-dealer or relating to the person’s association with the member. While FINRA’s jurisdiction does not extend to documents that are unrelated to the business of its members, the definition of what is related to the business of the member encompasses a lot. It includes but is not limited to records relating to a FINRA investigation of:
- outside business activities
- private securities transactions (this would currently include outside RIA activity)
- possible violations of just and equitable principles of trade
- FINRA rules, MSRB rules, and the federal securities laws
The rule requires that those subject to FINRA’s jurisdiction make available books, records or accounts even when they are in the possession of another person or entity, if those subject to FINRA’s jurisdiction controls or has a right to demand them. According to a FINRA FAQ on Rule 8210, whether a particular document is within a member firm’s or person’s “control” is determined by the facts and circumstances of each situation. Generally, a document will be considered to be in the control of a member firm or associated person if the firm or person has the legal right, authority or ability to obtain the document upon demand.
In a recent case, FINRA fined a firm for not obtaining telephone records from its telephone service provider even though the service provider destroyed the records as part of its normal document destruction policy. FINRA explained that the firm failed to request all available phone records from the vendor until well after FINRA had requested the records from the firm. Had they performed a timely records request from the vendor, they would have been able to access them before they had been destroyed.
So, what does this all mean? Managing regulatory inquiries is extremely important. Understanding how regulators use information, what they expect and the best way to interact with them can be a vital skill when it comes to responding to a regulatory inquiry. If you receive a request from FINRA under Rule 8210 or any other regulatory inquiry, have the expertise and legal counsel at hand to ensure you are minimizing your risk and exposure. Many firms engage remediation experts to define, design, implement and manage remediations that limit the cost and reputational damage of an enforcement action. In the case of Rule 8210 requests, immediately identify where the records are located and begin the process of getting the records ready to produce. If there is any question whether the record(s) are subject to FINRA’s jurisdiction, you should discuss the issue with legal counsel and your team of experts before deciding not to provide requested records. If you have any questions about what FINRA is requesting or would like to try and negotiate a narrower request, you should immediately reach out to your Counsel and remediation professionals who can guide you through the discussion and negotiating process.
Oyster’s consultants have years of experience with FINRA and SEC regulators from all over the country. Our employees are former regulators themselves, compliance officers and C-Suite executives that have addressed an array of regulatory challenges. Our team of industry practitioners can help guide you through the process and ensure that you are managing your regulatory risks.