What FINRA does to brokers who borrow from clients
Q: I recently got in trouble for borrowing money from a client. FINRA is involved and has sent it to enforcement. I can’t find anything in the sanction guidelines on this issue. Can you give me an idea of what kind of disciplinary issues I might be looking at?
A: You’re probably looking at an older set of sanction guidelines.
In April, FINRA revised the guidelines (see Regulatory Notice 17-13) to, among other things, add a new category: “Borrowing From or Lending to Customers.” The factors that FINRA says it will consider in determining sanctions in this area include:
- The purpose of the loan.
- The number of loans and the number of customers involved.
- Whether the loan was documented.
- Whether the terms of the loan were reasonable.
- Whether you’ve made payments on the loan or repaid it.
- The age, financial condition, and financial sophistication of the customer.
- Whether you made any misrepresentations to the customer or your employer, or otherwise concealed the activity from your firm.
Frequently, it’s that last item that trips up most reps, since it wouldn’t be an issue if the loan hadn’t been concealed from the employer in the first place.
Fines under the new guidelines range from $2,500 to $73,000, and suspensions range from 10 days to three months. If aggravating factors predominate, however, the suspension could be up to two years or even result in a complete bar.
Without the details of your situation, it’s hard for me to be any more specific than that. But to get a better idea of what disciplinary measure the National Adjudicatory Council might impose, you can try searching the council’s past decisions for scenarios that are similar to yours.