Despite a slowdown in the fines reported in 2015, the Financial Industry Regulatory Authority (FINRA) has continued to flex its enforcement muscle so far this year. During the first half of 2015, FINRA reported $37.5 million in fines in its monthly Disciplinary and Other FINRA Actions publications and its News Releases. In comparison, FINRA reported fining broker-dealers and associated persons $42.4 million during the first half of 2014 and $135 million for the entire year. If FINRA continues to assess fines in 2015 at the current rate, the year-end fines would total $75 million. This would represent a 44% decrease from the total fines reported by FINRA in 2014. Despite this significant decrease, a projected fine total of $75 million would still be the second-highest amount of fines imposed by FINRA since the financial crisis.

 

FINRA also ordered $8.3 million in restitution during the first six months of 2015. While significant, this is a substantial decrease compared to the $52 million FINRA ordered in 2014 (but an increase from the $5.9 million in restitution FINRA ordered during the first six months of 2014). However, there is often a significant increase in the fines and restitution reported late in the year, which means the final totals for 2015 will likely be even higher than the projected $75 million in fines and $17 million in restitution.

 

FINRA reported six “supersized” fines of $1 million or more during the first six months of 2015, totaling $17.8 million. One 2015 case resulted in a $10 million fine for alleged “widespread supervisory failures,” including allegedly failing to timely report trades, deliver millions of trade confirmations to customers, and properly supervise the sales of variable annuities, real estate investment trusts (REITs), and exchange-traded funds (ETFs).¹ The firm was also ordered to pay $1.7 million in restitution to customers. In comparison, during the first six months of 2014, FINRA reported five “supersized” fines, but those five cases totaled $20.4 million. In stark contrast to the “supersized” fine cases reported during each of the first six months of 2014 and 2015, FINRA reported only two “supersized” fines during the first six months of 2013, totaling $2.3 million.

     

Despite the significant decrease in fines during the first half of 2015, the number of disciplinary actions reported by FINRA decreased only slightly compared to 2014.² FINRA reported 553 disciplinary actions during the first six months of 2015, which is less than a 1% decline compared to the first six months of 2014 (558 disciplinary actions). The percentage of 2015 cases that involved firms (as opposed to only individuals) was identical to the first six months of 2014 (36% for both years).      

 

The Top Enforcement Issues for FINRA during the first half of 2015, in terms of the total fines reported in FINRA’s monthly Disciplinary and Other FINRA Actions reports and News Releases, were:
 

(1) Trade Reporting: $7.6 million in fines (72 cases);

(2) Short Selling: $4.2 million in fines (21 cases);

(3) Anti-Money Laundering: $2.4 million in fines (20 cases);

(4) Best Execution: $2.3 million in fines (25 cases); and 

(5) Suitability: $2.2 million in fines (30 cases).³

 

These topics demonstrate that FINRA is continuing to focus on issues that may appear to be administrative or technical, such as trade reporting and best execution. It also appears that FINRA is focusing on some of the same issues that it focused on in 2014, such as trade reporting, anti-money laundering, and best execution.  

 

The chart below demonstrates how the Top Enforcement Issues from 2014 fared during the first half of 2015:

 

Despite significant decreases in certain areas that appear to have been priorities in 2014, the first six months of 2015 indicate that FINRA will assess substantial fines this year, even if FINRA does not match 2014’s total fines. To try to avoid being sanctioned, firms should continue to focus on nuts and bolts issues, such as disclosure, suitability, AML and trade execution.
                                                         

 

¹ FINRA News Release, May 6, 2015, https://www.finra.org/newsroom/2015/finra-sanctions-lpl-117-million-widespread-supervisory-failures. 

  

² FINRA defines disciplinary actions as Letters of Acceptance, Waivers and Consents; Complaints; Rule 9522 suspensions; and Minor Rule Violations.

  

³ Many cases involve multiple allegations, making it impossible to attribute the exact amount of any particular fine to a specific allegation.  The $10 million case referenced above was not included in these subject-matter totals because that case involved such a large fine and so many different allegations it would have skewed all of the totals.