Code of Procedure (COP)

Code of Procedure (COP)
FINRA investigates violations of the conduct rules through Code of Procedure. When we mentioned words such as "suspend, expel, bar, and censure," those are all part of the Code of Procedure. Maybe a staff member of FINRA found out some disturbing information during a recent routine examination of a firm, or maybe a customer is upset about losing 90% this year and then found out her agent was break¬ing rules along the way.
Either way, the respondent is notified and asked to respond to the charges in writing. All requests for information must be met within 25 days. All registered persons must cooperate with the investigation, producing documents or testimony as required. And if it's decided that the respondent broke a rule, he could be censured, fined, sus¬pended, expelled, or barred.
Respondents receive an offer from FINRA to use what they call "summary complaint procedure," and if they want to avoid a hearing, they must accept it within 10 busi¬ness days. Acceptance, waiver, and consent is the term used when the respondent ac¬cepts this outcome.
On the other hand, if the respondent rejects their offer, there will be a hearing. Although not held in a court of law, the respondent typically is represented by an at-torney in these proceedings.
A third method of handling disciplinary charges is for the respondent to make an offer of settlement, in which he or they propose their own penalties.

Whether acceptance, waiver and consent (AWC), an offer of settlement, or a con¬tested hearing is used, FINRA can hand down any of the following penalties:
•    Censure
•    Fine
•    Suspension (up to 1 year) from the member firm or all member firms
•    Expelled (up to 10 years, for firms only)
•    Barred
What is the maximum fine FINRA can impose? Trick question—for a major violation, they've never set a cap. If it's a minor rule violation, there is a maximum fine (which changes from time to time), but no maximum will ever be set for the big violations.
Under COP, if the respondent is unhappy with the outcome of his hearing, he may appeal the decision, first, to FINRAs National Adjudicatory Council (NAC), then, to the SEC, and, finally, to the appropriate Federal appellate court.
That would also involve significant legal fees, and we would not find a lot of overturned disciplinary decisions through this process. But, unlike under Code of Ar-bitration—up next—there is an appeal process under Code of Procedure.


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