External Review Recommends Comprehensive Enhancements to FINRA Enforcement Program

Introduction

As part of its organization-wide FINRA Forward¹ initiative to evaluate its programs and practices, FINRA released a report² (“Report”) by a seasoned former broker-dealer enforcement practitioner and a former SEC Commissioner who were tasked with identifying “meaningful, common-sense improvements” to FINRA’s Enforcement program. Paul Eckert and Troy Paredes conducted a year-long review, receiving input from FINRA leadership and staff, the FINRA Board, advisory committees, member firms, and other constituencies, including trade associations, state regulators, investor advocates, claimant counsel, and enforcement practitioners.³

Although they recommend practical improvements across a wide range of FINRA’s Enforcement program, the recommendations share a common theme: making FINRA Enforcement more transparent, efficient, and fair by helping FINRA reach the right result in each matter without undue focus on achieving metrics such as case counts, fine totals, or win-loss results. To do this, Eckert and Paredes suggest areas for procedural enhancements, many of which build on steps FINRA has already commenced, including referral-stage meetings, regular status updates, expanded Wells response time, outreach before certain requests for information and documents issued pursuant to FINRA Rule 8210⁴, and opportunities to engage with FINRA staff before informal disciplinary action is taken through the issuance of Cautionary Action Letters.⁵

At this stage, the Report represents only recommendations for FINRA to evaluate, many of which will require FINRA to consider how they might affect FINRA surveillance and enforcement work conducted under Regulatory Services Agreements (“RSAs”) with other self-regulatory organizations (“SROs”). But taken together, the recommendations offer an array of areas for improvements on how matters are identified, investigated, evaluated, referred, and resolved and provide insight to broker-dealer member firms⁶, counsel, and compliance personnel about how FINRA’s Enforcement-related practices may evolve.

Key Takeaways

Increased Engagement

One overarching theme of the recommendations is that increased engagement between FINRA staff and member firms throughout the life of an investigation will benefit the Enforcement process. For example, the Report includes recommendations to encourage: 

• Greater communication with firms about referrals to Enforcement, including staff contact information and reasonably detailed explanations of the basis for the staff’s concerns and potential violations; 
• Communications to “discuss the objectives (and corresponding scope and timing)” before staff issues Rule 8210 requests; 
• Notice of staff’s specific concerns, which should allow firms a meaningful opportunity to present facts, legal arguments, business context, and subject-matter expertise before staff resources and institutional positions become committed to a particular charging theory and a matter “take[s] final shape;” and 
• Increased opportunities for communication during the Wells Process, including a pre-Wells “reverse proffer” or other opportunities for staff to explain its concerns and its preliminary determinations.

Some of these recommendations overlap with efficiency and fairness recommendations discussed below.

If adopted, these recommendations should help to shape the scope of investigations sooner, maximize the chances of making the Enforcement process fairer and more efficient, and achieve more principled resolutions of Enforcement matters. Member firms should look for opportunities to engage in the types of dialogue described above and leverage experienced internal and external counsel to help navigate these interactions.

Enhanced Efficiency

The Report includes many recommendations designed to enhance the efficiency of the Enforcement process, including measures to increase expediency and timeliness and reduce the cost associated with Enforcement inquiries. For example, Eckert and Paredes suggest:

• General enhancements to tracking, monitoring, and advancing Enforcement’s docket, including (i) “[s]tart-to-[f]inish” tracking related to age and dormancy of matters, and (ii) coordination and tracking of open requests, reviews, examinations, and investigations of member firms;
• Rapid detection and resolution of compliance concerns pre-referral to Enforcement;
• Expedited resolution of technical regulatory matters with no investor harm post-referral to Enforcement; 
• Additional pre-resolution engagement on remediation; and 
• Adoption of a limitations period, similar to those applicable to governmental actions, which would promote both timeliness of actions and fairness to firms.

Increased Fairness and Transparency

The Report also emphasizes room for improvement in fairness—with references to “due process”—and transparency. 

The fairness-oriented recommendations include: 

• Updated (and more expansive) cooperation credit guidance, which would (i) provide for a sliding-scale approach under which cooperation need not be “extraordinary” to receive meaningful credit, and (ii) allow for credit even in cases where a firm did not self-report or remediate as FINRA would expect or require. If adopted, this would give firms a stronger basis to argue that prompt remediation, investor restitution, control improvements, internal reviews, and resource-saving cooperation should affect the penalty and/or the manner in which a case is resolved;
• Limitations on the use of FINRA Rule 2010 (requiring firms to observe high standards of commercial honor and just and equitable principles of trade) “tag along” charges in cases where the underlying conduct does not involve fraudulent or unethical behavior thereby reducing the risk that technical or good-faith violations are characterized in a way that suggests a broader ethical failure; 
• Clearer application of the National Adjudicatory Council (“NAC”) FINRA Sanction Guidelines⁷ (typically used in arbitrations and hearings) to Enforcement actions, requiring, among other things, that Enforcement staff document reasons why sanctions in each settled matter are consistent with or depart from those Guidelines; and 
• Increased and formalized engagement on FINRA Rule 8210 requests, pre-issuance consultation, realistic deadlines, senior-level review of requests, safeguards against contention-style requests, clearer procedures for inadvertent production of privileged material, and establishment of a potential forum to challenge overbroad or unduly burdensome Rule 8210 requests.

The Rule 8210 forum proposal is one of the most noteworthy Report recommendations. A carefully designed forum could give firms an avenue to raise burden, privilege, or scope concerns without simply refusing to comply, while still preserving FINRA’s ability to act quickly in exigent circumstances. And the Rule 8210 recommendations come on the heels of the Securities and Exchange Commission (“SEC”) recently setting aside FINRA’s sanctions for a Rule 8210 violation because the SEC found FINRA’s Rule 8210 request for testimony “troubling” in a way that “raise[d] concerns about the fairness of FINRA’s investigative process.”⁸

The transparency-related recommendations include:

• Publishing an Enforcement Manual and Enforcement Workflows to help demystify the guidance given to staff and the lifecycle of a matter both pre- and post-Enforcement referral. These would help firms understand what to expect; when, how, and to whom to escalate issues; and prepare for key inflection points. 
• More consistent access to testimony transcripts and exhibits and the factual bases for Enforcement’s theories, which could help make Wells submissions and resolution discussions more meaningful.  
• Adoption of more balanced acceptance, waiver, and consent (“AWC”) language to improve transparency around why particular sanctions were appropriate for certain cases and reduce the risk that settlement precedent become untethered from the facts and circumstances of individual cases.

For member firms, counsel, and compliance personnel, the fairness recommendations, like the engagement and efficiency recommendations, underscore the importance of early preparation. Being prepared to engage staff in meaningful discussions early in the process could help to narrow wide-ranging 8210 requests that bear little relation to the primary issues in a matter, and could help to reduce the burden on firm resources. In short, the recommendations in the Report make clear the importance of coordinating with internal stakeholders and experienced internal and external counsel and compliance personnel to be prepared to engage staff on process, scope, and substance in a way that will best position firms to efficiently reach the right result.

¹ See https://www.finra.org/about/finra-forward.
² Paul R. Eckert, Troy A. Paredes, “Recommendations Based on a Review of the Policies, Procedures, Processes, and Practices of FINRA’s Enforcement Program” (June 30, 2026) (https://www.finra.org/sites/default/files/2026-06/Recommendatons-Based-on-Review-of-FINRA-Enforcement-Program.pdf).
³ We were among the enforcement counsel who participated in meetings with the Report’s authors.
⁴ FINRA Rule 8210 is a key mechanism through which FINRA staff request information (including documents and data) and testimony from entities and persons over which FINRA has jurisdiction.
⁵ A Cautionary Action Letter is a type of informal discipline that FINRA may impose in certain circumstances such as where “the violation is of a minor nature and there is an absence of customer harm or detrimental market impact.” (https://www.finra.org/rules-guidance/enforcement).
⁶ Throughout this piece we refer to “firms”, which is meant to include broker-dealer member firms and other entities or individuals over which FINRA has jurisdiction.
⁷ See https://www.finra.org/rules-guidance/oversight-enforcement/sanction-guidelines.
⁸ Opinion of the Securities and Exchange Commission, In the Matter of the Application of Jason Lynn DiPaola, Securities Exchange Act of 1934 Release No. 105568 at 15 (May 28, 2026). (https://www.sec.gov/files/litigation/opinions/2026/34-105568.pdf).

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Todd M. Beaton, Jr., an O’Melveny partner licensed to practice law in New York; Brant K. Brown, an O’Melveny partner licensed to practice law in the District of Columbia and Virginia; Jim Burns, an O’Melveny partner licensed to practice law in the District of Columbia and Maryland; Andrew J. Geist, an O'Melveny partner licensed to practice law in New York; Mia N. Gonzalez, an O’Melveny partner licensed to practice law in New York; Michele W. Layne, an O’Melveny of counsel licensed to practice law in California; and Yechan Choi, an O'Melveny associate licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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