What is FINRA Rule 8210: Information and testimony requests
Between 2020 and 2022, more brokers and associated persons were barred from the securities market due to FINRA Rule 8210 violations than any other Rule. So how can broker-dealers navigate a FINRA 8210 request?
Written by a human
In brief:
- Rule 8210 empowers FINRA to request information and inspect records belonging to firms under investigation.
- Some triggers for a Rule 8210 request include customer complaints, litigation, terminations, and judgments.
- Rule 8210 reinforces the critical importance of keeping up to date books and records.
What is FINRA Rule 8210?
FINRA Rule 8210 acts as a primary tool to compel member firms to provide information and allow the inspection of records. FINRA can examine a broker-dealer’s books, records, and accounts at any time.
FINRA 8210 serves as a crucial instrument to protect investors and the integrity of the securities market. That’s because it’s a fundamental mechanism that FINRA can deploy to facilitate an examination or investigation of a member firm or associated person.
What can be requested under FINRA Rule 8210?
Under Rule 8210, FINRA can instigate the following in relation to investigations, complaints, examinations or proceedings:
- Inspection and copying of books, records, and accounts
- Access to arbitration awards and settlements involving FINRA member firms
- Testimony requests
It’s important to know that FINRA cannot subpoena information, since it’s not a government entity. However, the consequences of ignoring Rule 8210 requests are severe, and we’ll cover this in more detail later in this article.
Lifting the veil on misconduct: How FINRA Rule 8210 protects investors
The far-reaching impact of FINRA rule 8210 on the securities market is an indicator of the vital role it plays in protecting investors and the wider market.
Here are five ways FINRA Rule 8210 safeguards investors and upholds market integrity:
1. Swifter investigations
Rule 8210 allows FINRA to quickly gather information and documents during investigations. This contributes towards faster resolution of potential misconduct, therefore protecting investors from ongoing harm.
2. Enhanced detection
Firms responding to a Rule 8210 request enables FINRA to uncover potential violations that might otherwise go unnoticed, promoting a more transparent and accountable securities market.
3. Deterrent effect
The ability to demand information discourages potential misconduct by making it easier for FINRA to detect and prosecute violations, fostering a culture of compliance within the industry.
4. Level playing field
Rule 8210 contributes to a level playing field by ensuring all market participants have access to the same information during investigations. This promotes fairness and prevents manipulation by individuals or firms.
5. Investor confidence
A robust enforcement system with strong information-gathering tools like Rule 8210 helps build investor confidence in the market, encouraging participation and investment.
FINRA Rule 8210 letters: Do firms need to respond to inquiries?
Quite simply, yes. Firms subject to FINRA regulation must respond to a FINRA 8210 inquiry truthfully and promptly.
As published by FINRA in its frequently asked questions about FINRA Rule 8210;
“An associated person must make available to FINRA books, records or accounts that are within his or her possession, custody or control.”
What triggers a FINRA 8210 letter?
Examinations and proceedings can trigger a Rule 8210 request. Other causes include customer complaints, bankruptcies, litigation, and terminations.
Advisors who conceal or fail to disclose judgments or liens may also receive a FINRA 8210 letter.
Consequences of violating FINRA Rule 8210: Fines and violations
According to FINRA’s published Sanctions Guidelines, non-compliance with FINRA Rule 8210 can manifest in a number of forms, most notably:
- Failure to respond
- Failure to respond truthfully
- Providing a partial but incomplete response
- Failure to respond in a timely manner
Monetary sanctions for Rule 8210 violations in the form of fines can range from $2,500 to $39,000 for small firms failing to respond in a timely manner. Alarmingly, there is no upper limit on fines for midsize or large firms that fail to respond or to respond truthfully to Rule 8210 requests.
In more serious cases, sanctions that can be imposed by FINRA include suspending a firm’s activities for up to two years, and even expelling the firm.
Not cooperating with FINRA following a request for information under FINRA Rule 8210 leads to an industry bar for the individual in question.
Sanctions imposed on individuals can result in negative disclosures on their public BrokerCheck or CRD record. This can have a long-lasting and devastating impact on a broker-dealer’s reputation and career.
Surprisingly, cases of intentional non-compliance with FINRA procedural Rule 8210 have been documented in recent years. Violating Rule 8210 appears to be a means for some brokers planning to leave the industry in a way that avoids compliance with an investigation into a more serious breach of FINRA Rules.
Summary
While FINRA Rule 8210 serves a vital purpose in protecting investors and upholding market integrity, its potential misuse by those seeking to evade accountability underscores the importance of ethical conduct throughout a broker’s career.
By prioritizing transparency and cooperation with FINRA investigations, brokers can not only avoid unnecessary sanctions, but also demonstrate their commitment to a fair and trustworthy financial services industry.
