In a dramatic response to a federal appellate court critique, the Financial Industry Regulatory Authority (FINRA) has rewritten part of its regulatory script. On June 2, 2025 — the same day the U.S. Supreme Court denied certiorari in Alpine Securities Corp. v. FINRA — FINRA filed a proposed rule change designed to protect its enforcement actions from constitutional challenges. FINRA designated the filing as a “noncontroversial” rule change, and it requested that the proposed rule become effective immediately upon receipt by the SEC.
Prior to this proposal, FINRA could impose disciplinary sanctions, including expulsions, without the SEC’s review. But in Alpine, the D.C. Circuit Court of Appeals held that FINRA could not unilaterally expel a member firm before the SEC had an opportunity to review the merits of FINRA’s decision. For more details about Alpine, please refer to “U.S. Supreme Court Denies Alpine’s Petition Challenging Constitutionality of FINRA Enforcement Proceedings.”
Much like a last-minute script rewritten before opening night, it appears FINRA’s rule change is intended to stave off the critics — comprising, in this case, the federal judiciary. For example, the amendment delays the effectiveness of FINRA’s decisions to expel member firms, cancel membership, or deny applications for continued membership by disqualified member firms until (i) the 30-day window to file for SEC review has passed without the filing of an application or (ii) if an application for review is timely filed, the SEC completes its review. This intermission applies to decisions issued in expedited proceedings under the FINRA Rule 9550 Series, disciplinary actions under the FINRA Rule 9300 Series, eligibility proceedings under the FINRA Rule 9520 Series and Funding Portal Rule 900(b), and expulsions under FINRA Rule 8320.
While the proposed rule change seeks to address constitutional concerns spotlighted in Alpine, its protections may be incomplete. On its face, the rule appears to apply only to member firms, not to individuals. Even so, the change reflects a broader shift — one that revises the script, slows the tempo, and gives the SEC a more prominent role in FINRA’s regulatory performance. As FINRA’s enforcement mechanism continues to evolve, further legal challenges are all but certain to take the stage.
