Independent Review Recommends Sweeping Changes to FINRA's Enforcement Program
From the desk of Jim Eccleston at Eccleston Law
An independent review commissioned by the Financial Industry Regulatory Authority (FINRA) recommends significant changes to the regulator's enforcement program, including adopting a statute of limitations, expanding due process protections, and providing greater credit to firms that cooperate during investigations, according to AdvisorHub.
The report, released on June 30, contains 23 recommendations developed by William & Mary Law School Professor Paul R. Eckert and former SEC Commissioner Troy A. Paredes. As AdvisorHub reports, the reviewers met with broker-dealers, regulators, investor advocates, and enforcement attorneys as part of FINRA's broader modernization initiative that began in early 2025.
Many of the recommendations address longstanding industry concerns regarding transparency, timeliness, due process, and the overall burden of regulatory investigations.
Among the most significant proposals, the reviewers recommend that FINRA adopt a formal five-year statute of limitations for most enforcement matters involving alleged violations of the federal securities laws. The recommendation includes exceptions for cases involving fraud or continuing misconduct.
The report also proposes expanding opportunities for firms to challenge FINRA's investigative requests under FINRA Rule 8210. According to AdvisorHub, Eckert and Paredes recommended allowing neutral hearing officials to consider disputes over information requests while implementing safeguards to discourage frivolous challenges.
The reviewers further recommends that FINRA revise Rule 8210 practices to avoid requests that could effectively require admissions of wrongdoing, unnecessarily implicate attorney-client privilege, or lack a clearly defined investigative purpose.
Several recommendations seek to strengthen due process before FINRA files a formal disciplinary action. As AdvisorHub reports, the reviewers propose that FINRA issue more detailed Wells Notices explaining the basis for potential enforcement actions and provide respondents with a meaningful opportunity, including a 30-day response period, to address the regulator's concerns.
The report also recommends that FINRA publish an enforcement manual outlining its investigative and remediation processes. FINRA previously indicated that it intends to develop such a manual.
The report contains recommendations only. FINRA has stated that it will consider the proposals as it continues evaluating potential reforms to its enforcement program.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
Tags: eccleston, eccleston law, finra enforcement, securities regulation, finra investigations, regulatory compliance, securities law
