Finra Fines, Enforcement Actions Plummet as Markets Thrive
The Financial Industry Regulatory Authority has collected 70% less money from fines in the first six months of 2017 than it did in the comparable period last year, tracking a decline in disciplinary actions, according to a new report.
Finra levied $23.5 million in fines in the first half of the year compared with $79.4 million over the same period of 2016, according to a midyear analysis from law firm Eversheds Sutherland. At an annualized $47 million, the Finra fines would represent the lowest total imposed by the regulator against firms and individual since 2010.
Total disciplinary actions fell 16% to 459 from January to the end of June compared with the 2016 period.
The drops likely reflect the long-running bull market in equities that keep investor complaints low, and effects of the Trump administration’s pro-business regulatory agenda, according to plaintiffs’ lawyers.
“The surging market has covered many abuses out there,” said Andrew Stoltmann, a Chicago-based lawyer.
Regulators, he added, have been given a green light to stand down, or at least to take a less aggressive approach against companies
A Finra spokeswoman said the decline in imposed fines was skewed because of several unusually large fines imposed on firms in the first half of 2016. Almost one-third of last year’s total, or $24 million, derived from anti-money laundering cases against Raymond James Financial and Credit Suisse Securities while MetLife Securities paid $25 million for annuities-related violations. Another $12.5 million was collected from Deutsche Bank over control lapses involving an internal communications system.
Rating enforcement performance by penalties fails to account for bars and expulsions that eliminate bad apples from the industry, the spokeswoman said, and overlooks Finra prioritization methods that emphasize areas where investors are most at-risk rather than on the highest monetary sanctions.
Nevertheless, regulatory zeal across the securities industry appears to have tempered this year. In a review of fines assessed cumulatively by the Commodity Futures Trading Commission, Securities and Exchange Commission and Finra in the first half of the year, totals were down by almost two-thirds from 2016, according to an analysis published last month in The Wall Street Journal.
Finra last year collected a total of $173.8 million in fines, an increase of 85% from the previous year, which helped it swing a profit for 2016, according to its annual report.
Brian L. Rubin, a co-author of the Eversheds report, warned advisors against becoming complacent about the declining number. “Despite an overall reduction in fines and the number of disciplinary actions, FINRA’s emphasis on certain areas shows that firms should still concentrate on core issues like suitability, books and records, trade reporting, and supervisory policies and procedures,” he said in a prepared statement.
The top five enforcement categories measured by total fines in the first half of the year, according to the report, were:
- Trade Reporting, $8 million in fines in 2017 versus $12.6 million in 2016;
- Books & Records, $2.2 million in 2017 versus $3.7 million in 2016;
- Mutual Funds, $754,000 in fines in 2017 versus $215,000 in 2016;
- Senior/Retiree violations, $558,000 in fines versus $37,500 in 2016;
- Forms U4/U5/3070 violations, $1.2 million in fines versus $720,000 in 2016.