FINRA Code of Procedure

The Code of Procedure is what happens after a FINRA investigation produces evidence the Department of Enforcement believes warrants formal discipline.

Application of the Code

The Code of Procedure governs FINRA proceedings for:

• Disciplining members and associated persons (APs), including review by the NAC and the FINRA Board, and applications to the SEC for review
• Regulating the activities of members experiencing financial or operational difficulties
• Suspensions, cancellations, and bars, including expedited proceedings for failure to comply with FINRA information requests, failure to pay fines, and other procedural defaults

The Code is the procedural backbone for everything from a routine disciplinary case to a financial-condition emergency action.

Definitions, Service, and Conduct

• Definitions: The Code's definitional vocabulary parallels the investigations framework's terminology: Adjudicator, Department of Enforcement, Hearing Officer, Hearing Panel, Office of Hearing Officers (OHO), National Adjudicatory Council (NAC)
• Service; Filing of Papers: The Code specifies how the Department of Enforcement and respondents serve and file papers (hand delivery, mail, overnight courier, or electronic methods authorized by FINRA)
• Proceedings: General provisions govern the conduct of disciplinary proceedings (representation, ex parte communications, motions practice, conduct standards)

Complaint and Answer

The disciplinary case starts when the Department of Enforcement files a complaint with the Office of Hearing Officers (OHO).

The complaint mirrors a civil pleading: it identifies the respondent, recites the alleged violations, cites the rules violated, and states the relief sought (sanctions).

Appointment of the Hearing Panel

A Hearing Panel consists of:

• A Hearing Officer (full-time FINRA employee, attorney) who chairs the panel and rules on procedural and evidentiary issues
• Two industry panelists drawn from a pool of current or former securities professionals (former regulators, former principals, current senior compliance officers)

For complex cases, an Extended Hearing Panel may be appointed (one Hearing Officer plus two or more industry panelists, up to a larger panel).

Why the Panel Composition Matters

• The Hearing Officer is a lawyer who handles legal and procedural issues but does not vote on industry-norm questions in isolation
• The two industry panelists provide market expertise; they understand whether the conduct deviates from industry norms
• Decisions are by majority vote of the panel, so a respondent must persuade at least two of three panelists

Discovery

The Code separately governs Enforcement's disclosure obligations and the respondent's discovery rights.

• Enforcement must disclose, among other things, documents and witnesses it intends to use at the hearing
• Enforcement must produce exculpatory or material information in its possession (a Brady-style obligation, narrower than criminal due process but broader than typical civil discovery)
• The respondent has limited discovery rights; FINRA proceedings are not full civil litigation, and the respondent generally cannot depose Enforcement witnesses

Hearing and Decision

Hearings are conducted before the Hearing Panel. The respondent has the right to:

• Present evidence (documents, witness testimony)
• Cross-examine Enforcement's witnesses
• Be represented by counsel

The Decision

The Hearing Officer drafts a written decision that includes:

• Findings of fact (what the panel concluded happened)
• Conclusions (whether the facts violate the cited rules)
• Sanctions imposed
• Effective date

The decision is generally issued within 60 days after a date set by the Chief Hearing Officer for preparation.

Default Decisions

A default decision may issue if a respondent fails to answer the complaint, fails to appear at a pre-hearing conference, or fails to appear at a hearing of which the party has due notice.

• Allegations may be deemed admitted
• Sanctions may issue without a full evidentiary hearing
• The respondent may move to set aside the default for good cause, but the standard is demanding

Exam Tip: Gotchas

• A Hearing Panel decides by majority vote: 2 of 3 panelists. The Hearing Officer chairs and rules on procedure but does not have a controlling vote on substantive findings; one industry panelist plus the Hearing Officer can constitute a majority, as can two industry panelists. The respondent must persuade two of three to prevail.
• A default decision can issue if the respondent fails to answer, fails to appear at a pre-hearing conference, or fails to appear at the hearing. Allegations may be deemed admitted and sanctions imposed without a full evidentiary hearing. Cooperation with procedural deadlines is foundational; missing them does not just delay the case, it can lose it.

Appeal to the National Adjudicatory Council (NAC)

A respondent or the Department of Enforcement may appeal a Hearing Panel decision (or a default decision) to the NAC.

What the NAC Can Do

The NAC may:

• Affirm the Hearing Panel's findings and sanctions
• Modify them
• Reverse them
• Increase or reduce sanctions
• Remand for further proceedings

The NAC's decision is FINRA's final decision on the matter unless the FINRA Board of Governors calls it for discretionary review.

Exam Tip: Gotchas

• The 25-day notice-of-appeal window runs from service of the Hearing Panel decision, not from the date of the decision itself. Missing the 25-day window forecloses NAC review. The only remaining options are the General Counsel's call-for-review (also bound by 25 days) or discretionary FINRA Board review.
• The NAC may INCREASE sanctions on appeal, not just affirm or reduce them. A respondent who appeals a $50,000 fine and 6-month suspension is not protected from a NAC decision raising the fine to $100,000 and the suspension to 1 year. The "appellate risk" is two-sided.

Discretionary Review by FINRA Board

The FINRA Board of Governors may, on its own motion, call a NAC decision for review.

• The Board may affirm, modify, or reverse the NAC decision
• The respondent does not have a unilateral right to Board review; it is discretionary, called only when the Board chooses to revisit the NAC outcome

Application to SEC for Review

A respondent aggrieved by a final FINRA disciplinary decision may file an application for SEC review.

Why the FINRA Record Matters

Because SEC review is not a de novo hearing, the OHO Hearing Panel record is the critical record for any subsequent appeal:

• New evidence is generally not admitted on SEC review
• The SEC reviews whether the FINRA decision was supported by the record
• A respondent who fails to develop a full evidentiary record at OHO has limited later opportunities to introduce new facts

Exam Tip: Gotchas

• SEC review of a FINRA disciplinary decision is not a de novo hearing; it is a record review. New evidence is generally not admitted on SEC appeal. This makes the OHO hearing record the critical record for any subsequent appeal. Respondents who do not develop a full evidentiary record at OHO have limited later opportunities to do so.

The Disciplinary Sequence (End-to-End)

Think of it this way: The Code of Procedure mirrors a civil court system in miniature. Investigation produces a complaint; the Hearing Panel acts as the trial court; the NAC is the intermediate appellate court; the FINRA Board is a discretionary supreme-court layer; and the SEC and federal Court of Appeals are external review levels above all of that. The 25-day appeal window at each level is far shorter than civil litigation, so deadlines control outcomes.