The head of enforcement at the US Financial Industry Regulatory Authority has spoken in public about last month's Regulatory Notice 19-23, which sets out the steps that firms and people can take to 'help themselves' in enforcement cases.

The aim of the new set of guidelines, according to head of enforcement Susan Schroder in a recent broadcast, is to speed up the provision of recompense to wronged consumers, or at least to speed up the enforcement process. The guidelines updated some previous ones originally issued in 2008.

On the subject of "credit for co-operation," Schroder said that FINRA expected everyone in the industry to co-operate with its requests during visits or 'examinations' and during the enforcement process, so 'extraordinary' was the operative word, referring to "ways in which we've seen respondents really go above and beyond, making an effort beyond what is required of them to fix a problem or to help us get to an end result quickly."

The goal of offering 'credit,' then, is to help FINRA cut time-consuming and resource-intensive processes and organise restitution (or one of its other objectives) much faster.

The most visible forms of credit are reductions in sanctions or decisions not to impose sanctions. Zero-dollar fines are not unheard of in this context. Schroder also mentioned firms being fined $1 million or $3 million "when it would have been multiples of that number."

There are other forms of credit. Sometimes FINRA decides that a firm broke the rules but it ought to close the case without further action. She added: "That hasn't been visible to the public because there's no case, so we don't talk about it. We never betray the anonymity of a respondent who was under a confidential investigation and never had a public action."

What has changed since 2008?

Regulatory Notice 08-70 has generated a mass of questions from financial firms over the years concerning its meaning. The firms have been particularly interested in more concrete examples of FINRA rewarding people for co-operating. The note is vague and has always left firm wondering what steps they can take to obtain credit where credit is due.

Schroder also mentioned an event that took place between 2008 and this year - Rule 4530, to do with reporting requirements. Since 2011 this rule has called on firms to report their own failings (the phrase she used was "self-report certain kinds of violative activity"). This 'self-reporting' has always been one of the four 'prongs' of credit for extraordinary co-operation, so since 2011 firms have reguarly asked FINRA whether they might still garner credit for doing it, even though it had now become a requirement.

She replied: "It's a good question. When it comes to self-reporting, I would say that not all self-reports are created equal. A typical 4530 self-report really just lays out the bare facts of, for example, the findings that the firm made that led it to determine that it violated a rule. A much more robust self-report might involve the firm coming into FINRA and saying 'here's what else we've done; we've already created a chronology of all the events we know of that led to the problem and we've collected a series of emails that we think will really help you understand what happened right away.' Give us some insight right away into what the firm knows and then keep us in the loop as the firm continues to investigate and remediate."

What is 'extraordinary'?

FINRA requires firms to hand over the information it wants and to fix the problems that come to light during its visits or investigations. If anybody has come to harm, Schroder said, "we would expect customers to be made whole."

Extraordinary steps that go beyond this co-operation are typically steps that allow FINRA to achieve those results earlier, saving it time and resources.

Schroder explained: "I wish I could say that it is a black-and-white matter because everybody would like a fine line that I could draw. No, it really is - I'll pull the old lawyer trick - it really is facts and circumstances dependent. There is not a science to this. It really is our judgment at the end of the day."

How can a firm exceed FINRA's expectations regarding restitution?

Restitution has always been one of FINRA's primary regulatory priorities ever since it was formed from the merger of the National Association of Securities Dealers and the regulation, enforcement and arbitration operations of the New York Stock Exchange. In Schroder's words, "investor protection is what we're here for." On that subject, she had a few tips to help firms receive credit.

"Hiring, perhaps, a consultant or extra temporary help to gather the data that you will need to make the restitution calculations. Or identifying kind-of a rules-based or a principles-based way to calculate restitution as opposed to going through the calculation customer-by-customer, which can be very time-consuming. So really finding ways to expedite the process."

What makes assistance during investigations substantial?

As a lawyer, Schroder used to tell her clients to answer questions that they were being asked and no more. This, however, was not her advice to firms in this context.

"Offering what you know...being proactive...being able to say hey FINRA, let us explain to you a little bit more about why this is a widespread problem in the industry, or let us tell you everything we've learned so far as part of our investigation. There's some information that you haven't asked for, FINRA, but we think it's relevant and we want to give it to you. Of course, we're not asking people to waive privilege, we wouldn't expect that."

What part does timing play?

To this, Schroder replied: "It's an interesting question, especially because the FINRA sanctions guidelines say that FINRA will give more credit for remediation and restitution that takes place before the regulator becomes involved in a matter, but that sorta bumps right up against Rule 4530 because if a respondent firm is required to self-report activity within 30 days, it's really not going to have the time to remediate a widespread supervisory problem or to pay restitution to a large number of customers and so what we've talked about in the most recent guidance is [that] under the right circumstances we would also consider remediation or restitution that's made after FINRA has [become] involved, perhaps as a result of a 4530 self-report."

FINRA has announced in public that it has given various large firms 'credit' because of extra co-operation, but Schroder was at pains to point out that such credit has also gone to small firms. She acknowledged the fact that it was easier for large firms to hire consultants to help them offer 'extraordinary' help to FINRA, but added that small firms that could not afford this might satisfy their own threshold simply by paying their staff to do some extra work.

Why now?

When asked why FINRA had updated its guidelines on the subject this year and not in 2009 or some other year, Schroder gave the audience a fascinating insight into the mind of a regulator. Bespattering her reasoning with obfuscatory jargon, she nonetheless confessed that it had taken her organisation a decade to realise that it is good policy to let firms know in some detail about the circumstances in which they might earn some mercy from their regulator, even though this obviously saves FINRA a great deal of time and money and makes it a more speedy and efficient protector of vulnerable investors.