FINRA’s 5 Biggest Fine Categories in 2016
March 15, 2017 by ThinkAdvisor
Fines ordered by the Financial Industry Regulatory Authority in 2016 shattered the self-regulator’s previous record in 2014 – jumping to a record high of $176 million, an 87% increase from the $94 million reported in 2015 and a 31% jump from the former record of $134 million reported in 2014.
That’s according to Eversheds Sutherland’s annual review of FINRA’s monthly disciplinary reports and press releases.
The law firm, formerly Sutherland, Asbill & Brennan, also found that the top FINRA enforcement issues for 2016 measured by total fines assessed included anti-money laundering, variable annuities, trade reporting, books and records and unregistered securities.
“If firms and their representatives weren’t paying attention to this [fines] trend, they should be now,” said Brian Rubin, co-author of the FINRA study and a partner at Eversheds Sutherland. “Although some have speculated a reduction in the Securities and Exchange Commission’s enforcement program with the new administration, FINRA shows no signs of slowing down.”
The increase in 2016 fines was principally due to the “significant rise in the size and number of what we call ‘supersized’ fines of $1 million or greater and what we call ‘yuuuge’ fines of $5 million or greater,” Rubin and associate Adam Pollet found.
In 2015, 18 “supersized” fines were assessed, totaling $52.2 million. In 2016, however, 34 “supersized” fines were assessed, totaling more than $137 million. Of those, eight were “yuuuge” fines, totaling nearly $89 million, the report states.
“This trend signals that FINRA will continue to assess substantial fines against firms even where there is limited or no measurable harm to customers,” Rubin and Pollet wrote.
Compliance officers were also in FINRA’s crosshairs in 2016, with FINRA cracking down on individual compliance officers in addition to their firms. The report found that 27 cases involved some type of sanction against a firm’s compliance officer, with some of these compliance officers also acting in other capacities such as firm president or CEO.
Also, according to the report, while fines jumped significantly and restitution decreased in 2016, the number of cases reported by FINRA decreased slightly last year.
FINRA reported filing 1,434 disciplinary actions in 2016, a decrease of about 2% from the 1,462 cases FINRA reported in 2015 and similar to the number reported over the past five years, the report states. The number of cases filed by FINRA has grown from 1,073 in 2008 to 1,434 in 2016, an increase of 34%.
The number of individuals barred increased from 492 in 2015 to 517 in 2016, a 5% increase, while the number of firms expelled by FINRA decreased slightly from 25 in 2015 to 24 in 2016, a decrease of 4%. The number of individuals suspended decreased from 737 in 2015 to 727 in 2016, a decrease of about 1%.
Here’s a breakdown of the top FINRA enforcement issues for 2016 measured by total fines, according to Eversheds Sutherland:
1. Anti-money laundering (AML) cases resulted in the most fines for FINRA in 2016, the third year in a row that AML has been on Eversheds Sutherland’s Top Enforcement Issues list. FINRA reported 32 AML cases in 2016, which resulted in $45.9 million in fines. The number of cases decreased by 11% from 36 in 2015, but the fines reported soared from $20.6 million in 2015, an increase of 123%. In 2015, AML placed second on this list, up from fourth in 2014.
2. Variable annuities cases resulted in the second largest amount of fines assessed by FINRA and the largest single fine in 2016 ($20 million), the first time that variable annuities have been on Eversheds Sutherland’s Top Enforcement Issueslist since 2009. In 2016, FINRA reported $30.3 million in fines for 30 variable annuities cases. Compared with 2015, these figures represent a 191% increase in fines from $10.4 million and a 20% increase in the number of cases from 25.
3. Trade reporting cases resulted in the third most fines for FINRA in 2016, down from its number one spot last year on the list. In 2016, FINRA reported $24.4 million in fines in 146 trade reporting cases. Compared with 2015, these figures represent a 19% decrease in fines from $30.3 million and an 8% decrease in the number of cases from 159.
4. Books and records cases resulted in the fourth most fines for FINRA in 2016. FINRA reported 99 books and records cases in 2016, which resulted in $22.5 million in fines. Compared to 2015, these figures represent a 423% increase in fines from $4.3 million and a 7% decrease in the number of cases from 106.
5. Unregistered Securities cases resulted in the fifth most fines for FINRA in 2016. FINRA reported 32 unregistered securities cases in 2016, which resulted in a total of $18.4 million in fines. This was an increase of 581% in fines from $2.7 million reported in 2015 and an increase of 39% from the 23 cases reported in 2015.
