Understanding FINRA Sanction Guidelines: What You Must Know
Sep 29, 2025
·
19 min read
Contents
If you’re in fintech launching your own company, advising clients, or steering compliance, you don’t want to mistake the FINRA sanction guidelines for just another rulebook. They’re your playbook for understanding how regulators think.
At their core, these guidelines explain how FINRA decides on disciplinary actions when someone crosses the line on securities rules. However, they do more than hand down penalties. They also reveal what FINRA considers serious, what counts as aggravating, and where there might be room for leniency.
In this article, we’ll walk you through what the guidelines are, how the National Adjudicatory Council applies them, the types of violations they cover, and the key factors that can shape the outcome of a case.
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.
What Are the FINRA Sanction Guidelines?
The National Adjudicatory Council (NAC) created the FINRA sanction guidelines to confirm that FINRA adjudicators handle disciplinary cases fairly and consistently.
Think of them as a framework: they suggest a range of penalties and highlight the factors that can tip the scales, such as aggravating circumstances and details that might work in someone’s favor.
Overview of the Guidelines and Their Purpose
The NAC designed the sanction guidelines to help adjudicators determine appropriate penalties for misconduct and to deter future violations. They’re not set in stone, though, and adjudicators can go outside the suggested ranges if the details of a case call for it.
Role of the National Adjudicatory Council
The National Adjudicatory Council is the FINRA committee behind the sanction guidelines, and it not only develops the rules but also reviews disciplinary and membership case decisions. When a case comes to them, they can uphold the ruling, change it, overturn it entirely, or even send it back for another review.
What makes the NAC unique is its mix of voices. The council includes both industry members and non-industry members, which helps promote decisions that aren’t one-sided but reflect a more balanced perspective.
Why FINRA Sanction Guidelines Matter for Broker-Dealers and Individuals
The FINRA sanction guidelines apply to all formal disciplinary actions, whether a case goes to a hearing or is settled. Think of them as a shared playbook that FINRA adjudicators, enforcement teams, firms, individuals, and their lawyers can all turn to.
The most recent version of the FINRA Sanction Guidelines was published in 2024 and includes separate sections for firms and individuals. This distinction makes it possible to tailor sanctions to the specific circumstances, roles, and responsibilities of each party.
For firms like broker-dealers, the sanction guidelines set different fine ranges according to size. Small businesses, mid-size players, and large institutions are distinctly judged based on their resources and how a penalty might affect them. For individuals, the emphasis is on personal accountability and the specific role they played in the misconduct.
This distinction is critical in fintech compliance. Many firms run with lean teams and innovative models, so having clear expectations makes it easier to build compliance strategies that target the risks most relevant to their operations.
Core Principles Behind FINRA’s Disciplinary Process
A few core principles shape FINRA’s approach to discipline and guide how sanctions are decided and put into practice. They include:
1. Investor Protection
The sanction guidelines promote high standards of business ethics.
To do this, FINRA uses a range of disciplinary tools like fines, suspensions, and even expulsions, matched to the seriousness of the misconduct.
For instance, in cases involving significant harm to investors or egregious violations, sanctions may exceed the recommended ranges to serve as a strong deterrent. This helps make penalties more than just a cost of doing business, reinforcing their role with a meaningful consequence that underscores the seriousness of the violation.
Additionally, FINRA's enforcement actions often include orders for restitution to compensate harmed investors, reinforcing the commitment to investor protection.
2. Market Integrity
Market integrity is a foundational principle in FINRA’s disciplinary framework. It helps level the playing field for all market participants and builds confidence in the financial system. The sanction guidelines support this integrity by addressing misconduct that could disrupt market operations or weaken investor trust.
Misconduct can take many forms, including insider trading, market manipulation, and spreading false or misleading information. In every case, FINRA sets the penalties to match how serious the violation is and how much it impacts the market.
3. Deterrence
Sanctions are meant to prevent future misconduct, both by the person or firm at fault and across the wider industry. They remind everyone that compliance matters and that breaking the rules has real consequences.
FINRA’s guidelines call for penalties that match the seriousness of the misconduct and are strong enough to discourage others from doing the same. If a case causes widespread harm, brings in big illegal profits, or involves deliberate wrongdoing, adjudicators can go beyond the usual penalty ranges to make the deterrent message even stronger.
4. Proportionality
The goal of the sanction guidelines is to make the penalties fair, not overly harsh or too light, based on the facts of the case. Adjudicators look at things like how much harm was caused, whether the violation was intentional, and whether there’s a history of past disciplinary issues when deciding on the right sanction.
For example, a minor procedural slip-up might only call for a warning, while intentional fraud that causes major losses for investors could result in heavy fines or even expulsion.
5. Consistency
FINRA’s sanction guidelines give regulators a clear framework for keeping penalties consistent when cases are similar. That kind of consistency goes a long way in helping people feel the process is fair and in building trust in the system.
The guidelines also walk adjudicators through the key considerations when deciding on sanctions, so everyone’s working from the same standards. This way, similar cases get similar outcomes, and there are fewer surprises or unexplained differences from one decision to the next.
6. Due Process
Due process is at the heart of FINRA’s disciplinary process, so that everyone involved in an enforcement action is treated fairly and openly. This means respondents get clear notice of the charges against them and a real chance to tell their side of the story.
The sanction guidelines also emphasize that adjudicators should consider all relevant factors, including those that make the situation more serious and those that might work in the respondent’s favor, before deciding on a penalty. This careful approach helps maintain consistency across similar cases. And if someone disagrees with a decision, they have the right to appeal, which adds another layer of protection against mistakes or bias.
7. Corrective Action
The sanction guidelines aim for penalties that not only hold people accountable but also help fix the issues that led to the problem in the first place. It’s all part of FINRA’s commitment to building a strong culture of compliance and continuous improvement across the financial industry.
In practice, that means adjudicators are encouraged to look at remedies that fit the unique circumstances of each case. This might involve bringing in an independent consultant like InnReg to take a close look at its compliance program and recommend improvements. Or a fix might involve a firm setting temporary limits on certain business activities until it fully addresses any problems. The goal is to promote sanctions that lead to real, lasting changes, not just a short-term penalty.
Types of Violations Covered Under FINRA Sanction Guidelines
FINRA’s sanction guidelines break down the different types of misconduct that could lead to disciplinary action. For each one, they explain what’s involved, what factors might come into play, and the kinds of penalties that could follow.
1. Sales Practice Violations
Sales practice violations happen when firms or individuals cross the line in how they recommend or sell securities. Think of it as when a broker pushes something that doesn’t really fit a client’s needs, makes trades without asking first, trades way too often just to collect fees, or leaves out essential details a client should know.
When this kind of misconduct happens, it doesn’t just hurt investors financially. It also breaks the trust that keeps the market running. Depending on how bad the situation is, the penalties can be harsh, ranging from fines or temporary suspensions to being barred from the industry.
2. Supervisory Failures
Supervisory failures happen when a firm doesn’t set up or maintain a proper system to oversee the activities of its associated persons, as required by FINRA Rule 3110. This can include having weak or incomplete written supervisory procedures (WSPs), not keeping an eye on outside brokerage accounts or outside business activities, or ignoring warning signs that point to possible misconduct.
For example, in January 2025, a firm was fined $125,000 for not having a supervisory system that could reasonably review securities transactions in its associated persons’ outside brokerage accounts. The firm’s WSPs didn’t include steps to confirm it was receiving and reviewing account statements, which resulted in more than 140 disclosed accounts going unmonitored.
3. Registration Violations
Registration violations happen when a firm or individual doesn’t follow the registration rules set by FINRA or other regulators. This might mean doing business without the right broker-dealer license, forgetting to update paperwork, or submitting forms with missing or wrong information. At first, these might sound like small mistakes, but they can undermine the trust that keeps the system working and often lead to serious penalties.
For example, a firm can get in trouble if it lets someone who isn’t properly registered handle responsibilities that require a license, like reaching out to clients or executing trades. Enforcement actions can also result from failing to promptly update Form U4 or Form U5 to reflect changes in an individual's disciplinary history, financial disclosures, or outside business activities.
See also:
4. Books and Records Violations
Books and records violations happen when a firm fails to create, maintain, or preserve the documents required under FINRA Rule 4511 and SEC Rules 17a-3 and 17a-4. These records include things like trade confirmations, order tickets, customer account details, and business-related communications.
Recordkeeping problems often come up when firms keep incomplete or inaccurate records, don’t hold onto them for long enough, or store them in formats that regulators do not accept. The simplest way to stay out of trouble is to make recordkeeping part of everyday routines. That means checking files regularly, giving employees clear training on what the rules require, and relying on electronic systems that meet regulatory standards.
Need help with broker-dealer compliance?
Fill out the form below and our experts will get back to you.
5. Net Capital and Financial Reporting Violations
When a firm violates net capital and financial reporting rules, it either didn’t keep enough capital or failed to keep accurate financial records. When that happens, the firm may have trouble meeting its obligations to clients or counterparties, and those problems can ripple out into the wider market.
Most of the time, these issues come from mistakes that seem simple at first. Maybe someone miscalculates net capital, files a report with errors, or waits too long to speak up when something looks off. A common example is when a firm puts assets in the wrong category, which makes its finances look stronger than they really are. Slip-ups like these can add up fast and often turn into fines or restrictions on how the firm does business.
6. Anti-Money Laundering (AML) Failures
Anti-Money Laundering (AML) failures represent a significant area of concern within FINRA's regulatory framework. Under FINRA Rule 3310, every member firm has to put an AML program in place that can spot and report suspicious activity, following the rules set out in the Bank Secrecy Act.
This program should have clear written policies, regular independent testing to verify everything is working, a designated person in charge, and ongoing training so staff know what to look for. In July 2023, a large and well-known investment management company was fined $6 million by FINRA for longstanding AML program failures, including the failure to file nearly 1,500 Suspicious Activity Reports over a decade.
7. Advertising and Communications Violations
FINRA Rule 2210 says that any public communication from a broker-dealer, whether it’s an ad, a website, a social media post, or even sales literature, has to be fair, balanced, and not misleading. The idea is simple: firms need to give people the full picture, not just the upside.
The most common slip-ups in marketing compliance happen when firms make big promises, leave out important details, downplay risks, or use testimonials without the right disclosures. Think about a company calling an investment “guaranteed” or “risk-free.” Without proper caveats, these statements cross the line. More recently, regulators have also started questioning firms’ use of influencers. If those posts exaggerate or mislead and the firm doesn’t keep an eye on them, it can lead to serious penalties.
In 2024, a finance company was fined $850,000 for failing to supervise influencer content that contained exaggerated claims about the firm's services.
Want a quick reference for compliance marketing terms? Check out our Compliance Glossary for Fintech Marketing.
8. Fraud and Misrepresentation
Fraud and misrepresentation happen when a firm gives investors information that isn’t true or leaves out key details. Sometimes it’s done on purpose, other times it’s just careless, but the impact is the same. People can lose money, and the trust that keeps the markets running starts to fall apart.
In practice, this can show up as misrepresenting investment products, omitting material facts, or making exaggerated claims about potential returns. For instance, in 2016, a securities company was fined $25 million for negligent misrepresentations related to variable annuity replacement applications, affecting thousands of customers.
9. Trading Violations
Trading violations happen when someone bends the rules in a way that hurts both the market and investor confidence. Common examples include front-running, insider trading, manipulating prices, or ignoring the duty to give clients the best possible execution on their trades. These may look like minor slip-ups, but they break FINRA rules and federal securities laws, which can lead to big penalties.
Take front-running as an example. This is when a broker makes trades for themselves before carrying out a client’s order, using insider knowledge to get ahead. A 2020 case highlighted this practice. An investment company was fined $700,000 by FINRA for trading ahead of customer orders, undermining the principle of fair trading.
10. Ethical Violations
When someone breaks FINRA’s ethical rules, the real loss is trust. These rules are there to keep things fair for clients and to protect the integrity of the markets.
If a broker puts their own interests first, hides something important, or cuts corners, it doesn’t just hurt investors. It also hurts the reputation of the firm and everyone tied to it.
This could look like a broker pushing an investment that doesn’t actually fit the client. Or they make trades without asking first. Maybe they downplay the risks just to make the product sound better. Each of those choices is an ethical violation. And each one chips away at the trust that clients place in their advisors.
See also:
How FINRA Determines Sanctions: Key Factors Considered
When deciding on sanctions, FINRA adjudicators look at more than just the violation itself. They weigh different factors that help make the outcome fair, proportionate, and effective in encouraging compliance. Some of the most important factors are:
Nature and Severity of the Violation: When FINRA reviews a case, one of the first things it looks at is the nature of the misconduct. Was it intentional, careless, or simply a mistake? Deliberate or fraudulent actions are always taken more seriously than minor errors or technical slip-ups. The rule that was broken also makes a difference. For instance, fraud, insider trading, or market manipulation are viewed as major issues, while FINRA adjudicators typically treat small procedural mistakes less harshly. The bigger the risk to investors or the market, the tougher the sanction is likely to be.
Extent of Harm to Investors or the Market: FINRA also considers the impact of the misconduct. They look at how many investors were affected, how much money was lost, and whether the behavior hurt the fairness or transparency of the market. Even if no one actually lost money, actions that could have put investors or the market at serious risk can still lead to severe penalties. In general, the bigger the impact, the stronger the sanction is likely to be.
Disciplinary History: FINRA also pays attention to what your record looks like. If there have been issues in the past, they may see that as a pattern and decide that stronger penalties are needed. Repeated violations show that earlier warnings or sanctions did not have the intended effect. On the other hand, having a clean record makes a real difference. If this is your first issue, FINRA is more likely to view it as an isolated mistake and may respond less severely.
Acceptance of Responsibility: FINRA also looks at whether the person or firm owns up to what happened. Acknowledging the misconduct early and taking responsibility can go a long way in your favor. When you cooperate with the investigation, work to fix the problems, and show a real commitment to doing better, it demonstrates accountability. This kind of approach often leads to a more positive outcome.
Efforts to Remedy Harm: Another thing adjudicators pay attention to is what you do after the problem comes to light. Did the firm step in quickly to repay customers who were affected? Were changes made to prevent the same mistake from happening again? Taking action early, especially before regulators have to step in, shows that you are serious about making things right. These kinds of efforts can really help your case and often lead to a softer outcome.
Compliance Culture: FINRA also pays attention to the overall mindset of the firm when it comes to compliance. They look at whether the team has sound systems in place, if people get the training they need, and if leaders step up quickly when issues come up. When a firm shows that it truly values compliance, it often helps soften the outcome. But if compliance is brushed aside or treated as unimportant, the result is usually much tougher.
Aggravating and Mitigating Factors: Adjudicators also look at extra details that can make penalties either tougher or lighter. On the harsher side, things like intentional misconduct, repeated violations, harming customers, or refusing to cooperate can all work against you. On the lighter side, self-reporting an issue, fixing problems quickly, working openly with investigators, and having a strong history of compliance can help your case. These kinds of details allow adjudicators to tailor sanctions to the unique circumstances of each situation.
Deterrence: FINRA also thinks about whether the penalty will help stop future misconduct. This is not only about the person or firm involved, but also about sending a message to the wider industry. If the violation led to big profits, had a broad impact, or was done on purpose, the penalties are often harsher. The goal is to make it clear that this kind of behavior will not be accepted going forward.
Monetary and Non-Monetary Sanctions in the FINRA Guidelines
FINRA’s sanction guidelines allow for a range of disciplinary measures, depending on the nature and severity of the violation. These sanctions can be monetary, non-monetary, or a combination of both.
Monetary sanctions typically include fines and restitution. Fines are intended to penalize misconduct and deter future violations, while restitution requires firms or individuals to compensate harmed investors.
Non-monetary sanctions include censures, suspensions, bars, undertakings, and expulsion or revocation of registration. In some cases, firms may also be required to implement enhanced supervisory procedures or retain an independent consultant like InnReg to review their compliance program.
The sanctions in each case depend on the specific facts and circumstances. FINRA’s goal is always the same: protect investors, keep the markets fair, and discourage future misconduct.
Aggravating and Mitigating Factors in FINRA Enforcement
When deciding on sanctions, FINRA adjudicators look at certain factors that can make the outcome either more or less severe. These factors help them put the situation in context, so the sanction fits the full story of what happened.
Aggravating Factors
FINRA considers the following factors to determine whether harsher sanctions may be warranted:
Intentional or reckless conduct: The misconduct was deliberate or carried out with disregard for regulatory obligations.
Pattern of misconduct: Similar violations occurred repeatedly over time, showing a lack of corrective action.
Harm to customers: The actions caused financial loss, confusion, or other adverse outcomes for investors.
Refusal to cooperate: The individual or firm failed to respond to FINRA requests or obstructed the investigation.
Lack of remediation: The firm made no effort to correct the issue or prevent future violations after adjudicators identified the misconduct.
Supervisory failures: The firm lacked adequate oversight or failed to detect and address red flags.
Mitigating Factors
Certain factors can work in a firm’s or an individual’s favor and may lead to a lighter sanction in a disciplinary case.
Self-reporting: The firm or individual voluntarily disclosed the violation before regulatory detection.
Remedial actions: Prompt and meaningful steps were taken to correct the issue and prevent recurrence.
Cooperation with investigations: The firm provided full and timely cooperation throughout the enforcement process.
Disciplinary history: A clean or limited history of prior violations suggests the misconduct was not part of a broader pattern.
Isolated incident: The violation was a one-time occurrence rather than part of repeated or ongoing misconduct.
Strong compliance culture: The firm had a well-established compliance program and policies in place at the time of the violation.
How to Respond to FINRA Disciplinary Actions
Receiving a FINRA disciplinary notice calls for a quick and thoughtful response. Here are the key steps to take when one arrives:
1. Review the Notice Carefully
The first step is to read the disciplinary notice closely and verify that you understand what it says. Look for the specific violations listed, the FINRA rules cited, and the type of alleged misconduct. As you go through it, write down the key deadlines for a response and mark them on your calendar, since missing a deadline can seriously limit your options.
Finally, check what kind of notice you received. It could be a Wells Notice, a formal Complaint, or an AWC (Acceptance, Waiver, and Consent). Each one comes with its own process, so knowing which one you are dealing with will guide how you move forward.
See also:
2. Engage Legal and Compliance Experts Immediately
As soon as an enforcement matter arises, bring in professionals who know this space well. That might mean securities attorneys, former regulators, or compliance consultants who understand FINRA disciplinary proceedings. These experts will walk you through the allegations, help you understand the risks, and shape a response strategy that fits your situation. Getting the right guidance early allows you to protect your rights, avoid mistakes, and start building a strong defense from the very beginning.
3. Evaluate Settlement Options
Take a step back and ask yourself if settling is the smartest move based on the facts and the risks involved. FINRA often offers settlements through an AWC, which might include things like fines, suspensions, or other penalties.
Settling can wrap things up faster and bring some closure, but it also means making certain admissions and having the outcome show up on your permanent record. The goal is to weigh the peace of resolving the matter quickly against the possible long-term effects on your reputation and regulatory standing.
4. Prepare for a Formal Hearing if Needed
If you choose not to settle, begin preparing for a hearing before FINRA’s Office of Hearing Officers. This preparation involves gathering all the important documents, deciding who the best witnesses are, and working side by side with your legal counsel to build a strong case.
Putting in the effort early makes a big difference. It can influence both the outcome and the severity of any sanctions, while also helping you stay organized and avoid unnecessary mistakes along the way.
5. Remediate Issues Internally
Once a problem has been spotted, the focus should shift to cleaning it up at the source. That could mean updating your supervisory procedures, offering fresh training for your team, tightening up internal controls, or even adjusting roles and responsibilities. Keep track of every step you take along the way. Having a clear record shows that your firm is serious about making things right and committed to stronger compliance. Taking action like this can make a positive difference in how FINRA views your response if sanctions are on the table.
6. Maintain Transparency Throughout the Process
The best approach during an investigation is to stay open and straightforward. Communicate with FINRA honestly, answer questions promptly, and provide accurate information without holding anything back.
Transparency should also flow inside your firm. Keep senior leadership, legal teams, and other stakeholders updated so no one is caught off guard. When you take this approach, you show accountability and cooperation, which can put you in a much stronger position for a fair resolution.
—
FINRA’s sanction guidelines are critical to how disciplinary actions are decided. If you are a fintech firm, a broker-dealer, or a financial professional, it helps to know these FINRA guidelines. They give you a stronger compliance foundation and make it easier to handle problems if they come up.
When you take the time to learn how sanctions are assessed and close compliance gaps before they turn into problems, you mitigate risk and show regulators, clients, and partners that your firm values trust and responsibility.
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 Sep 29, 2025
Last updated on Sep 29, 2025
Related Articles
Featured LinkedIn Posts
