FINRA Code of Procedure
Also known as: code of procedure, COP
The FINRA Code of Procedure is the set of rules governing how FINRA investigates and disciplines member firms and their associated persons for violations of securities rules. It covers complaints, hearings, sanctions, and appeals.
The FINRA Code of Procedure lays out the formal process FINRA uses to handle disciplinary actions against broker-dealers and their registered persons. When FINRA believes a member has violated FINRA rules, SEC regulations, or federal securities laws, its Department of Enforcement files a complaint under the Code of Procedure, and the case proceeds through a structured hearing process.
A typical case is heard by a hearing panel, which can impose sanctions including censure, fines, suspension, expulsion of a firm, or a bar of an individual from the industry. Respondents can appeal a hearing panel's decision to the National Adjudicatory Council (NAC), and beyond that to the SEC and ultimately the federal courts. Many matters are resolved without a full hearing through settlement procedures such as Acceptance, Waiver and Consent (AWC) letters, and minor violations can be handled under simplified minor rule violation procedures.
It is important to distinguish the Code of Procedure from the Code of Arbitration Procedure. The Code of Procedure deals with rule violations and discipline — FINRA acting as regulator. The Code of Arbitration resolves monetary disputes between parties, such as a customer suing a firm or one firm suing another. A helpful memory device: procedure punishes, arbitration awards money.
The Series 7 exam tests the Code of Procedure alongside the Code of Arbitration, and candidates should know the types of sanctions available, the appeal path through the NAC and SEC, and how disciplinary proceedings differ from arbitration.
Key takeaways
- The Code of Procedure governs FINRA disciplinary actions against member firms and associated persons for rule violations.
- Sanctions can include censure, fines, suspension, expulsion, or a bar from the securities industry.
- Hearing panel decisions can be appealed to the National Adjudicatory Council, then to the SEC, and then to the federal courts.
- The Code of Procedure handles discipline; the separate Code of Arbitration handles monetary disputes between parties.
- The Series 7 exam tests both codes and expects candidates to keep their purposes straight.