FINRA Disciplinary Actions: What They Are and How To Avoid Them
Aug 18, 2025
·
19 min read
Contents
Who’s watching, and what happens when financial firms and individuals in the United States cross the line? As the front-line regulator for broker-dealers in the US, FINRA enforces rules that protect investors and preserve the integrity of the securities market. Its disciplinary actions are serious, public, and potentially career-ending.
Founders, legal teams, and compliance officers in fast-moving fintech environments need to understand what these actions are and how they work. Not just the legal definitions and mechanics, but what triggers them, how they escalate, and how to avoid them.
Read on to learn what FINRA disciplinary actions are, how the process unfolds, and the steps you can take to reduce your risk of becoming a target of those actions.
InnReg is a global regulatory compliance and operations consulting team serving financial services companies since 2013. If you need assistance with compliance or fintech regulations, click here.
Understanding FINRA and Its Disciplinary Role
FINRA plays two roles: setting the rules for broker-dealers and enforcing them. Its disciplinary program is how it holds firms and individuals accountable when they break the rules.
Disciplinary actions don't just happen because of major fraud; they can come from all sorts of things. Maybe someone wasn't supervising their team properly, kept sloppy records, or just miscommunicated something important. Sometimes people do things on purpose that they shouldn't, but other times it's really just about having weak processes or not enough oversight in place.
What FINRA Is and Why It Exists
FINRA is a self-regulatory organization that oversees broker-dealers and registered individuals in the United States. It operates under SEC oversight but writes its own rules, conducts exams, monitors trading, and enforces compliance.
Its purpose is to protect investors and maintain market integrity. Unlike the SEC, which brings civil and criminal enforcement through the courts, FINRA uses administrative tools. It can fine firms, suspend individuals, or bar them from the industry entirely. For most firms in the securities space, FINRA is the regulator they deal with most often.
How FINRA Protects Investors and the Market
FINRA’s mandate is investor protection. It does this by setting rules that promote fair treatment, transparency, and ethical conduct in the securities industry. It monitors trading for signs of manipulation, reviews firms’ advertising and customer communications, and inspects how firms supervise employees and handle conflicts of interest.
When misconduct occurs, FINRA pursues enforcement. That might mean fines, suspensions, or requiring firms to repay harmed investors. The goal isn’t just punishment, but to deter future violations and reinforce trust in the system.
What Are FINRA Disciplinary Actions?
FINRA disciplinary actions are formal responses to rule violations by broker-dealers or their associated persons. These actions are not limited to fraud or high-profile misconduct. They often stem from failures in supervision, communication, disclosure, or recordkeeping.
The process starts when FINRA determines that a firm or individual has broken a rule. If noncompliance leads to sanctions, that firm or individual can be looking at fines, suspensions, bars from the industry, or orders to pay restitution. Even minor violations can result in published disciplinary records that follow a firm or professional for years.
FINRA also distinguishes between formal and informal actions. Not every issue results in a full enforcement case, but informal outcomes still carry weight internally and may influence how future matters are handled.
FINRA publishes its monthly disciplinary actions here.
How FINRA Disciplinary Actions Work
FINRA doesn't just randomly pick firms to investigate. Something always tips them off first.
Maybe it's a technical slip-up, maybe it's something more serious, but there's always a reason they start looking. And here's the thing: once they get going, things can move pretty fast. That's why it's smart for firms to know what sets these investigations off in the first place and how they typically unfold. The earlier you can get ahead of it, the better chance you have of keeping things from getting expensive and messy.
What Triggers a FINRA Investigation
FINRA investigations usually start when something signals a potential risk to investors or a breakdown in firm controls. These triggers often come from routine operations, customer interactions, or external sources.
Here are the most common triggers:
Customer complaints: One upset customer probably won't get FINRA's attention, but when the same problems keep popping up? That's when they start paying attention. If they're getting calls from multiple clients saying things like “my advisor pushed investments that made no sense for me” or “they told me one thing but did something completely different” or “there's activity in my account that I never agreed to,” that's when FINRA decides it's time to take a closer look. Even if the matter is resolved privately or through arbitration, FINRA may review whether the firm had supervisory failures or weak disclosure practices behind the scenes.
Regulatory exams: FINRA conducts periodic exams of member firms, known as “cycle exams.” It may also initiate a “cause exam” in response to a specific concern. During these reviews, examiners evaluate books and records, emails, advertising materials, AML systems, and supervisory procedures. Red flags like outdated policies, missing records, or unreviewed alerts can lead to further inquiry. A small oversight during an exam can evolve into a formal investigation if it reveals broader weaknesses.
Surveillance alerts: FINRA uses automated systems to detect irregular trading patterns, market manipulation signals, or inconsistencies in regulatory filings. For example, if an algo-driven trading platform repeatedly posts large orders and cancels them before execution, it may resemble spoofing. Similarly, FINRA can flag discrepancies between a firm’s filings and CRD data, which could suggest undisclosed disciplinary history or firm structure changes.
Tips and whistleblowers: Reports from current or former employees, customers, or competitors often lead to investigations, especially if they involve misconduct that hasn’t yet surfaced publicly. FINRA accepts anonymous tips, and even informal complaints through phone calls or emails can prompt information-gathering. Allegations related to product misrepresentation, forged documents, off-book accounts, or unapproved outside business activities are taken seriously.
Referrals from other regulators: FINRA works closely with the SEC and state securities regulators. If another agency uncovers conduct that falls under FINRA’s jurisdiction, such as improper sales practices, failures to supervise, or violations of municipal securities rules, it may refer the case for additional action. Some of FINRA’s most serious enforcement cases begin this way.
Failure to respond to prior requests: Rule 8210 gives FINRA broad authority to request documents, data, and testimony. Delays, omissions, or non-cooperation in response to these requests are violations in themselves. Firms sometimes trigger escalation not because of the original issue, but because they mishandle the follow-up. Even a missing email archive or incomplete Form U5 response can lead to a formal case if the failure suggests deeper gaps or willful obstruction.
Public information or media coverage: FINRA monitors public sources for litigation, press coverage, bankruptcy filings, and other signals that may involve member firms or registered individuals. If a broker is named in a civil lawsuit for fraud, or if a firm’s name surfaces in news about client losses or crypto-related scams, FINRA may open a matter to assess whether regulatory violations are involved, even if no complaint has been filed yet.
Types of Actions: Formal vs. Informal
Not every FINRA investigation leads to formal enforcement. Sometimes FINRA will handle things behind the scenes, like giving you a heads-up or telling you to fix something internally. But other times, they'll make it public and hit you with official sanctions that everyone can see. Knowing which way things are likely to go can help you figure out how serious the issue is and what kind of response makes sense.
Formal Disciplinary Actions
When FINRA decides to pursue you with a formal enforcement action, you're pretty much guaranteed to face some kind of sanctions. And these aren't just slaps on the wrist. The consequences can impact you financially, operationally, and reputationally. Let's break down the main types of sanctions and see how they play out in real life:
Fines: This is FINRA's bread and butter - they use fines to punish you and hopefully scare others from doing the same thing. How much you'll pay depends on how bad the violation was, whether anyone got hurt, and if you did it on purpose. Say you made a mistake in your record-keeping for the first time. You might get off with a relatively small fine. But if you had major systemic problems, especially ones that cost investors money? You're looking at fines in the hundreds of thousands or even millions. FINRA also pays attention to whether you profited from breaking the rules. And if you did, expect them to hit you even harder.
Suspensions: Suspensions temporarily prevent an individual from acting in a registered capacity. A registered representative might be suspended for failing to update Form U4, using unapproved communication channels, or executing unauthorized trades. Firms can also face suspension of a specific business line if it poses an ongoing risk. Suspensions typically last from 10 business days to several months, depending on the conduct.
Bars: A bar permanently prohibits an individual from associating with any FINRA-regulated firm. Bars are reserved for serious violations, such as fraud, misuse of customer funds, or willful failure to cooperate with investigations. Bars can also apply to executives or supervisors who failed to address known misconduct. Once barred, an individual cannot re-enter the industry without FINRA approval, which is rarely granted.
Expulsion: Expulsion removes a firm’s FINRA membership, cutting off its ability to operate as a broker-dealer. This is typically applied when violations are systemic, uncorrected, or involve senior leadership. Expulsion effectively ends the business unless the firm can operate under another regulatory regime, which is uncommon in securities.
Restitution: When customer harm occurs, FINRA may require firms or individuals to repay affected investors. This applies in cases of unsuitable recommendations, misrepresentations, or improper product sales. Restitution is often paired with other sanctions and is calculated based on documented losses.
Censures: A censure is a formal statement of disapproval. It doesn’t carry a monetary penalty but is publicly disclosed. It’s often used alongside fines or suspensions and serves as a public reprimand. For regulated firms, a censure may still impact relationships with clearing partners, vendors, or institutional clients.
Heightened supervision or special conditions: In some cases, FINRA imposes conditions short of suspension or bar. A broker might be allowed to stay registered but only under strict supervision, with enhanced reporting or limited customer contact. These conditions are usually time-bound and tied to specific conduct.
Each of these sanctions becomes part of the individual’s or firm’s CRD record and is visible on BrokerCheck. That visibility can affect client trust, hiring decisions, and firm valuations, especially for startups or growth-stage fintechs where credibility is under close scrutiny.
Informal Actions
Informal actions are used when the issue is limited, isolated, and does not result in investor harm. They do not involve formal charges or published findings, but they are still part of the firm’s regulatory history and can shape future scrutiny.
Common informal outcomes include:
Cautionary Action Letters: These letters identify a rule violation or weakness and advise the firm or individual to address it. There is no admission of wrongdoing and no sanction imposed, but FINRA keeps a record. If the same issue arises later, the prior letter can be treated as a missed warning.
Requests for voluntary corrective action: In some cases, FINRA will point out gaps during an exam or review and ask the firm to make changes. This might involve updating written supervisory procedures, improving training, or adding controls. Firms are expected to respond in writing and outline what steps they took.
Counseling or education: FINRA may hold informal discussions with the firm or individual, especially if the issue relates to a misunderstanding of the rules. These conversations are not disciplinary but are logged by FINRA staff as part of the broader supervisory relationship.
While informal actions do not result in public disclosures, they should not be taken lightly. They show that FINRA has identified weaknesses that, if not corrected, can escalate to requiring formal actions.
See also:
Investigation Sources and Process
Once FINRA decides to open an investigation, the process moves through defined stages, each with its expectations and risks. While the source of the concern may vary, the investigative structure remains consistent.
The first step is usually a request for information. This comes in the form of a Rule 8210 letter, which requires the firm or individual to provide documents, data, or written responses. FINRA may also request interviews or sworn testimony. These requests are broad in scope and legally binding.
Depending on the issue, FINRA’s Enforcement Department or its Member Supervision team handles these investigations. Enforcement focuses on rule violations and potential sanctions, while supervision focuses on ongoing compliance concerns that may be resolved without formal discipline. Both units may coordinate if the matter evolves.
How long an investigation lasts depends on the complexity of the issue and the volume of information involved. In straightforward cases, FINRA may review and close the matter within a few months. In others, particularly those involving multiple parties or serious misconduct, the process can stretch beyond a year.
During this period, FINRA does not share interim updates unless additional information is needed. Firms often learn the outcome only when FINRA completes its review. That outcome may include a formal complaint, a settlement offer, an informal caution, or a decision to take no further action.
Investigations are confidential while active, but the consequences of how a firm handles them are long-lasting. For compliance teams, this phase is where process discipline matters most. Documentation should be organized, communications should be coordinated, and leadership should be involved early.
Need help with broker-dealer compliance?
Fill out the form below and our experts will get back to you.
Settlements, Hearings, and Sanctions Explained
After FINRA wraps up its investigation, it has to make a call: does it want to pursue enforcement or not? If they decide to move forward, you're looking at two options: a settlement or a formal hearing. Either way, both routes have specific rules you have to follow, deadlines you can't miss, and real consequences no matter which way you go.
Settlements
A settlement is when the firm or individual agrees to resolve the case by accepting FINRA’s findings and sanctions. The details of the settlement are captured in a “Letter of Acceptance, Waiver, and Consent.” The respondent does not admit guilt but agrees to the outcome. Settlements are often used when the facts are not in dispute or when the respondent wants to avoid the time and cost of litigation. FINRA publishes all settlements, and they appear in both CRD and BrokerCheck records.
Hearings
If no settlement is reached, the case goes to a hearing. The complaint is reviewed by a panel of the Office of Hearing Officers, which includes a hearing officer and two industry panelists. The hearing process includes formal discovery, presentation of evidence, and witness testimony. Both sides can submit arguments and challenge the evidence presented.
Sanctions
After the hearing, the panel issues a written decision, which outlines whether a rule violation occurred. If so, it includes the relevant sanctions, which are determined by FINRA’s published sanction guidelines: standardized penalties across similar cases.
The respondent can appeal the decision to FINRA’s National Adjudicatory Council. If that appeal is denied or partially upheld, further appeal rights exist through the SEC and eventually the federal courts. During the appeal process, sanctions are generally not enforced until a final decision is issued.
Examples of FINRA Disciplinary Actions
Here are the real outcomes from actual FINRA enforcement cases. These examples show how different types of violations play out in practice, what led to the disciplinary action, and what firms or individuals were required to address. They show common patterns and persistent weaknesses across the industry.
Failure to Disclose Customer Complaints and Arbitration Outcomes
In January 2025, FINRA sanctioned a firm and two of its principals for not updating required regulatory filings after multiple customer arbitration claims were submitted. Despite receiving earlier cautionary guidance from FINRA about their disclosure obligations, the individuals did not amend their Forms U4 and U5 to reflect the pending matters.
FINRA viewed the omissions as willful and material. The disciplinary action resulted in a $600,000 fine and a censure for the firm. Additionally, one principal received a two-year suspension and a $20,000 fine, while the other was also suspended for two years and fined $10,000. As part of the resolution, the firm was required to hire an independent consultant to review its disclosure practices.
This case highlights the importance of treating disclosure requirements as time-sensitive. Firms and registered individuals are expected to update their records when a reportable event occurs, not after it is resolved.
Misrepresenting Institutional Orders as Retail in Bond Offerings
A broker-dealer misrepresented institutional bond orders as retail sales to create false demand. From 2016 to 2018, the firm knowingly submitted 194 bond orders under retail customer names while the bonds were intended for the dealer’s own inventory. This gave an inflated view of retail interest in the offering.
FINRA determined the firm’s disclosures were misleading and that supervision failed to detect this practice. The firm was censured and issued a $300,000 fine. Additionally, FINRA ordered the firm to disgorge over $837,000 in ill-gotten profits, reflecting the magnitude of its abuse of the sales process.
This case highlights two key points. First, packaging institutional orders as retail is a direct violation of disclosure standards. Second, firms must have controls that catch discrepancies between actual trading intent and recorded customer orders. Without accurate oversight, back-office misrepresentation can carry steep penalties.
Deficient AML Oversight and Use of Off-Channel Communications
In a 2025 enforcement case, FINRA sanctioned a finance firm and its designated AML officer for failing to maintain adequate oversight of both anti-money laundering obligations and business communications. The firm allowed registered representatives to communicate with clients through personal messaging apps without any supervisory system in place. These communications were not captured, retained, or reviewed, violating core recordkeeping and supervision rules.
At the same time, the firm’s AML program lacked essential elements. It did not implement procedures to identify or investigate red flags, particularly related to new account onboarding, foreign customers, and participation in higher-risk transactions like initial offerings. FINRA found that the firm ignored indicators of potentially suspicious activity and failed to escalate them internally or report them as required.
The enforcement action resulted in a monetary fine, a suspension for the AML compliance officer, and a requirement to retain an outside consultant to remediate the firm’s communication and AML controls. This case illustrates how gaps in message monitoring and weak AML processes often go hand in hand. When firms do not control where and how business is conducted, they lose the ability to detect risk in real time.
Inadequate Product Due Diligence and Misleading Recommendations
In a recent case, a firm and its supervising principal were disciplined for failing to vet complex alternative investments before recommending them to retail clients. The firm had no documented due diligence process, and its supervisory review was superficial at best.
For example, representatives sold non-traded real estate products and alternative mutual funds to customers whose risk profiles and time horizons did not match. FINRA found that neither the firm nor the supervisor performed reasonable assessments of the products' structure, liquidity, or underlying risks.
As a result, the firm was required to address unsuitable recommendations under Reg BI. It was censured and fined a modest amount. The principal was suspended for one month and required to complete continuing education on Regulation Best Interest.
This case highlights a recurring enforcement focus: firms must conduct documented, substantive due diligence and supervise new or complex products closely. Simply knowing that something is complex is not sufficient.
Long-Term Supervisory Gaps in Outside Account Monitoring
In a 2024 enforcement action, FINRA disciplined a broker-dealer for failing to enforce its own policies regarding outside brokerage account monitoring. Over several years, the firm permitted registered representatives to maintain and trade in external accounts without proper oversight. These accounts were not linked to the firm’s supervisory systems, and no reviews were conducted to identify potential conflicts, excessive trading, or misuse of client information.
FINRA found that the firm had written supervisory procedures requiring disclosure and approval of outside accounts, but those procedures were not followed or enforced. Several employees actively used external platforms to execute trades, some of which raised red flags. The firm did not detect this activity until after FINRA began its investigation.
This case illustrates how lapses in basic supervisory follow-through can persist for years if internal controls are not tested and enforced. Written policies are only effective if firms apply them consistently and build systems to track compliance.
How to Avoid FINRA Disciplinary Actions
Avoiding disciplinary action starts with how a firm builds and manages its compliance program. What matters is not just having written policies, but whether they are consistently applied, monitored, and updated as the business evolves.
The following strategies focus on practical steps firms can take to reduce risk and build stronger regulatory resilience.
Proactive Compliance Strategies
Firms that treat compliance as a continuous function are less likely to face enforcement. Proactive strategies involve anticipating risk, identifying gaps early, and responding before issues escalate.
Start with a risk assessment that reflects the firm’s actual business model. A trading app with self-directed retail users has different exposures than a firm offering private placements to accredited investors. The compliance program should be designed to match those risks, not copied from a generic template.
Surveillance systems should be in place to flag unusual activity. That includes trade reviews, account monitoring, and communication oversight. The goal is not to eliminate every incident, but to detect issues early and show that the firm is taking real steps to supervise its business.
Lastly, maintain a clear record of how decisions are made. When regulators review your program, they look for evidence that risks were identified, evaluated, and addressed, not just that the right documents existed.
Supervisory Procedures
Effective supervision is one of the first things FINRA examines when reviewing a firm’s conduct. Written procedures alone are not enough. What matters is whether the firm follows those procedures in practice and adapts them as the business changes.
Supervisory responsibilities should be clearly assigned. Each business activity, including trading, client onboarding, communications, and outside accounts, needs an identified person responsible for oversight. That person must have the tools, authority, and time to supervise effectively.
Procedures should be specific. Vague language like “management will review activity as needed” does not meet regulatory expectations. Instead, outline what is reviewed, how often, what triggers escalation, and how findings are documented.
Firms also need to test whether procedures are being followed. Internal reviews or mock exams can identify gaps between policy and practice. If reviews uncover recurring issues, revise the process and retrain staff. Supervisory programs should evolve alongside product offerings, client types, and staffing changes.
Employee Training and Certifications
Training is a firm’s first line of defense against regulatory mistakes. Even the best-written procedures can fail if employees do not understand how to apply them in day-to-day operations. Ongoing education helps keep the team aligned with regulatory expectations and prepares them to handle evolving risks.
Start with role-specific training. Front-office staff should be clear on rules around communications, suitability, disclosures, and escalation. Supervisors need deeper training on review responsibilities, documentation standards, and red flag resolution. Compliance officers should also stay current on rule updates, enforcement trends, and exam priorities.
Training should cover emerging risk areas. That includes off-channel communications, crypto-related activities, and the use of AI in client-facing workflows. As these areas evolve, so should the firm’s internal education.
Well-trained employees are more likely to spot issues early, report them correctly, and avoid the kind of missteps that lead to formal investigations.
See also:
Frequently Asked Questions About FINRA Disciplinary Actions
How long does a FINRA investigation take?
There’s no fixed timeline. FINRA investigations can take anywhere from a few months to several years, depending on the complexity of the case, the volume of documents, and the level of cooperation from involved parties. Early-stage inquiries often begin quietly, and a formal investigation may follow only after sufficient evidence suggests potential violations. Responding promptly and transparently can help avoid unnecessary delays.
Can you settle with FINRA?
Yes. Many respondents choose to settle with FINRA through a document called an Acceptance, Waiver, and Consent (AWC). This settlement avoids a formal disciplinary hearing and usually includes sanctions like fines, suspensions, or censures. However, by signing an AWC, the respondent waives the right to appeal and accepts the findings as final. Settlements can be strategic when the risks of a hearing outweigh the potential outcomes.
Do disciplinary actions go on public record?
Yes. Once finalized, most disciplinary actions are made public through FINRA’s Disciplinary Actions Online database and often appear in news releases or monthly summaries. The details usually include the rule violations, the sanctions imposed, and the names of individuals or firms involved. Public disclosure is a core part of FINRA’s mission to promote transparency and investor confidence.
Are FINRA disciplinary actions public?
Yes, almost all formal disciplinary actions are public. FINRA publishes AWCs (settlements), decisions from hearings before FINRA’s Office of Hearing Officers, and appeals decided by the NAC. Informal actions, such as cautionary letters or Rule 8210 information requests, are generally not public unless escalated to formal charges.
Can you appeal a FINRA disciplinary decision?
Yes, respondents can appeal decisions made by FINRA’s Office of Hearing Officers to the NAC. Further appeals can be made to the SEC, and ultimately, federal courts. However, while an appeal is pending, any sanctions may be stayed or enforced depending on the circumstances and procedural rulings.
How long do FINRA disciplinary records stay on BrokerCheck?
Permanently, in most cases. Disciplinary actions involving significant violations typically remain on a registered individual’s or firm’s BrokerCheck profile indefinitely. Minor matters may eventually fall off the report based on FINRA's retention policies, but serious sanctions, like bars, hefty fines, or suspensions, generally stay visible to the public for transparency and investor protection purposes.
What’s the difference between a FINRA inquiry and an enforcement action?
A FINRA inquiry is an informal request for information under Rule 8210. It doesn’t necessarily mean wrongdoing, and FINRA may simply be gathering facts. An enforcement action is a formal proceeding that follows if FINRA determines that violations have occurred. This can result in charges, hearings, and sanctions. The key difference lies in formality and intent. An inquiry is exploratory; an enforcement action is accusatory.
—
FINRA disciplinary actions are not limited to bad actors or large institutions. Most come from overlooked details, weak supervision, or failures to follow through. These actions are public, lasting, and often avoidable. For fintech firms and broker-dealers moving fast, strong compliance practices are not just about satisfying regulators. They protect the business, support growth, and build long-term trust with clients, partners, and investors.
The firms that avoid enforcement are not the ones with the longest manuals. They are the ones that apply what they write, fix what they find, and stay alert as the rules and risks evolve.
How Can InnReg Help?
InnReg is a global regulatory compliance and operations consulting team serving financial services companies since 2013.
We are especially effective at launching and scaling fintechs with innovative compliance strategies and delivering cost-effective managed services, assisted by proprietary regtech solutions.
If you need help with broker-dealer compliance, reach out to our regulatory experts today:
Published on Aug 18, 2025
Last updated on Aug 18, 2025
Related Articles
Featured LinkedIn Posts
