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VII. Qualification and Membership [Version up to Mar. 22, 2011]

Branch Offices—Failure to Register

FINRA Rule 2010 and NASD IM-1000-4

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Number of branch office locations not properly registered.
2. Duration of period when branch office(s) were not properly registered.
3. The manner and scope of activities conducted in unregistered branch office(s).
Fine of $1,000 to $5,000 plus the dollar amount of registration fees that would have been assessed if the branch had been registered properly. Individual

In egregious cases (including, but not limited to, those in which the firm previously has engaged in similar misconduct), consider suspending the responsible individual in any or all capacities for up to 30 business days.

Firm

In egregious cases (including, but not limited to, those in which the firm previously has engaged in similar misconduct), consider suspending the firm and/or the branch office at issue with respect to any or all activities or functions for up to five business days. Also require demonstrated compliance with the rule.

Cheating, Using an Impostor, or Possessing Unauthorized Materials in Qualifications Examinations or in the Regulatory Element of Continuing Education

FINRA Rule 20101

Principal Considerations in Determining Sanctions2 Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether nature of material indicated that it would not be useful for taking examination; i.e., whether content of material makes it clear that respondent did not intend to cheat.
Cheating

Unauthorized Possession That Does Not Rise to the Level of Cheating

Fine of $5,000 to $25,000.
A bar is standard. If mitigation is documented (only in cases of unauthorized possession that do not rise to the level of cheating), consider a lesser sanction, such as suspending the individual in any or all capacities for up to two years.

1 This guideline also is appropriate for violations of MSRB Rule G-3.

2 (a) The Membership and Registration Rules prohibit applicants from receiving assistance while taking an examination; (b) study outlines provided by FINRA Regulation Qualifications Department advise applicants that examinations are "closed book"; (c) examination pamphlet given to applicants advises that unauthorized materials may not be brought by the applicant into the testing center; (d) applicants taking an examination by computer must certify by prescribed keystrokes, to continue computer operation, that they will take the examination in the prescribed fashion and not receive assistance while taking the examination and, for paper examinations, applicants must sign a certification before beginning examination; and (e) proctor instructions before examinations advise applicants that unauthorized materials are not allowed during the examination.


Continuing Education (Firm Element)—Failure to Comply With Rule Requirements1

FINRA Rule 20102 and NASD Rule 1120

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether the firm's misconduct effectively denied several registered persons access to participation in firm-sponsored continuing education.
2. Whether the firm has completed a training needs analysis and/or has developed written training plans aligned with the business activities of the firm.
Individual

Fine of $1,000 to $5,000.

Firm and/or Responsible Principal

Fine of $2,500 to $20,000.
Individual

In egregious cases, such as where there is intentional misconduct and/or repeat violations, suspend the individual in any or all capacities for 30 or more days (up to two years) or consider a bar.

Firm and/or Responsible Principal

In cases involving multiple violations or a violation of extended duration, where the firm has taken no corrective actions and appears unwilling to comply, consider suspending the firm (and/or responsible principal) with respect to any or all activities or functions for up to five business days and requiring demonstrated compliance with the requirements of NASD Rule 1120.

In egregious cases, such as where the firm has not conducted a needs analysis or developed a written training plan, consider suspending the firm (and/or responsible principal) for a longer period (up to two years) or expelling the firm (and/or barring responsible principal).

1 This guideline is intended to apply to member firms that have not developed sufficient continuing education programs and/or made available to registered employees continuing education programs, and to individuals who fail to comply with the firm educational program.

2 This guideline also is appropriate for violations of MSRB Rule G-3.


Continuing Education (Regulatory Element)—Failure to Comply With Rule Requirements1

FINRA Rule 20102 and NASD Rule 1120

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Nature and extent of responsibilities of inactive person(s).

Violations by Individuals

2. Whether the respondent knowingly functioned with inactive registration.

Violations by Firms

3. Whether the firm knowingly allowed individual to function while registration was inactive.
Individual

Fine of $1,000 to $5,000.3

Firm

Fine of $2,500 to $20,000.4
Individual

In egregious cases, such as where there is intentional misconduct and/or repeat violations, suspend individual in any or all capacities for 30 or more days (up to two years) or consider a bar.

Firm

Where the firm has taken no corrective actions and appears unwilling to comply, consider suspending the firm (and/or responsible principal) with respect to any or all activities or functions for up to five business days. In egregious cases, such as those where the firm knowingly allowed a person with lapsed registration to act in a registered capacity and/or in cases with other aggravating factors, consider a longer suspension (of up to two years) of the firm (and/or responsible principal) or expulsion of the firm (and/or bar of the responsible principal).

1 This guideline is intended to apply to individuals who have not complied with the Regulatory Element and are acting in a registered capacity and to firms that have employed one or more individuals whose registration has lapsed for non-compliance with continuing education requirements and who continue to work in registered capacities.

2 This guideline also is appropriate for violations of MSRB Rule G-3.

3 As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.

4 As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.


Disqualified Person Associating With Firm Prior to Approval; Firm Allowing Disqualified Person to Associate Prior to Approval

FINRA Rule 2010, NASD Rule 1031 and Article III, Section 3 of the FINRA By-Laws1

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Nature and extent of the disqualified person's activities and responsibilities.
2. Whether Form MC-400 application was pending.
3. Whether disqualification resulted from financial and/or securities misconduct.
Firm and Supervisory Principals

Fine of $5,000 to $50,000.2

Disqualified Person

Fine of $5,000 to $50,000.3
Firm and Supervisory Principals

In egregious cases, consider suspending the firm with respect to any or all activities or functions for up to two years and the suspending supervisory principal in any or all capacities for up to two years or barring the supervisory principal, particularly where he or she knowingly allowed a disqualified person to become associated.

Disqualified Person

In egregious cases, consider a bar.

1 This guideline also is appropriate for violations of MSRB Rule G-4.

2 As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.

3 As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.


Member Agreement Violations

FINRA Rule 2010

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether the respondent breached a material provision of the agreement.
2. Whether the respondent breached a provision of the agreement that contained a restriction that was particular to the firm.
3. Whether the firm had applied for, was in the process of applying for, or had been denied a waiver of a restriction at the time of the misconduct.
Fine of $2,500 to $50,000.1 In cases involving a serious breach of a restrictive agreement, suspend the firm with respect to any or all activities or functions and/or suspend the responsible individual in any or all capacities for up to two years.

In egregious cases, consider expelling the firm and/or barring the responsible individual.

1 As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.


Registration Violations

FINRA Rules 2010 and 1122, and NASD Rules 1000 through 11201

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
1. Whether the respondent has filed a registration application.
2. Nature and extent of the unregistered person's responsibilities.
Firm and/or Individual

Fine of $2,500 to $50,0002
Firm

In egregious cases, consider suspending the firm with respect to any of all activities or functions for up to 30 business days.

Individual

Consider suspending the individual in any or all capacities for up to six months.

In egregious cases, consider a lengthier suspension (of up to two years) or bar.

1 This guideline also is appropriate for violations of MSRB Rules G-2 and G-3.

2 As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.


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