FINRA Is Now Making It Easier To Commit Financial Crime
The Financial Industry Regulatory Authority (FINRA), the self-regulatory organization overseeing U.S. broker-dealers, has proposed a significant rule change that would allow firms and individuals facing expulsion or permanent bans to request a stay of disciplinary actions and appeal for reconsideration by the Securities and Exchange Commission (SEC).
While FINRA frames the proposal as a procedural enhancement to ensure fairness, retail investors and consumer advocates are sounding the alarm, warning that the change could embolden market manipulators and weaken protections against financial crime.
The proposed amendment, detailed in FINRA’s Regulatory Notice 25-09, would permit member firms and associated persons facing severe sanctions—such as expulsion from FINRA membership or a permanent bar from the securities industry—to request a temporary stay of the disciplinary action.
This stay would allow them to continue operating while seeking SEC review to reconsider the sanction.
FINRA argues that this change aligns with its commitment to “due process” and addresses concerns raised in recent legal challenges, such as the Alpine Securities case, where a federal court questioned FINRA’s authority to impose immediate expulsions without SEC oversight.
Expulsions and bars are among the harshest penalties, reserved for egregious violations like fraud, market manipulation, or misappropriation of client funds.
The proposed rule would introduce a mechanism for firms and individuals to delay these sanctions, potentially allowing them to continue business operations during the appeal process.
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Retail Investors’ Fears: A “Get Out of Jail Free” Card for Bad Actors
Retail investors, already wary of market volatility and systemic risks, are expressing deep concern that the rule change could create loopholes for bad actors.
Social media platforms like X are buzzing with posts from retail investors, many of whom view the proposal as a step toward leniency for those engaged in market manipulation and financial crime.
“This feels like FINRA handing market manipulators a free pass to keep rigging the system while they appeal,” one user posted on X, echoing a sentiment shared by many.
Consumer advocacy groups, such as the Public Investors Advocate Bar Association (PIABA), have also voiced apprehension.
A 2023 FINRA report noted that the organization expelled five firms and barred 178 individuals for misconduct, with $88.4 million in fines imposed.
Retail investors fear that allowing these parties to delay sanctions could undermine FINRA’s ability to act decisively, potentially leaving retail portfolios vulnerable to fraud and manipulation.
Critics argue that the pendulum may swing too far toward leniency.
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A Shift in Regulatory Philosophy?
The rule change is part of FINRA’s broader “FINRA Forward” initiative, launched in April 2025, which aims to modernize its regulatory framework and reduce burdens on member firms.
While FINRA emphasizes that the initiative prioritizes investor protection, some retail investors and advocates see it as part of a deregulatory trend under political pressure.
Posts on X have speculated that FINRA’s moves align with a broader push to ease restrictions on financial firms, potentially influenced by the current administration’s deregulatory agenda.
FINRA defends the proposal, stating that it strengthens the disciplinary process by ensuring consistency and transparency.
The organization also points out that the SEC retains ultimate authority to uphold or overturn sanctions, ensuring oversight of FINRA’s actions.
However, retail investors remain skeptical, particularly given FINRA’s history of declining enforcement actions.
According to an analysis by Eversheds Sutherland, FINRA’s enforcement penalties dropped from $101 million in 2023 to $87 million in 2024, signaling a shift toward voluntary compliance over punitive measures.
This trend, combined with the proposed rule, fuels fears that FINRA is softening its stance on financial misconduct.
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