Welcome to Financial Advisor IQ
Follow

Finra Fines Have Skyrocketed for Offenders

By Alex Padalka July 6, 2017

Finra imposed far fewer monetary sanctions in 2016 compared to 2015 but managed to collect almost twice the amount of revenue, according to its annual financial report.

The industry’s self-regulator imposed 624 monetary sanctions in 2016 – a 10% drop from the 691 it doled out the year prior, according to the report. But revenues from fines grew to $173.8 million in 2016 from $80 million in 2015, according to the regulator. Assuming offenders paid their fines in the same year they were issued, the figures seem to indicate the average penalty for those fined more than doubled to $278,526 in 2016 from $115,774 in 2015.

Finra also ordered firms to pay back $27.9 million in restitution to investors last year, according to the report. The fines helped the regulator post net income of $57.7 million in 2016, compared to a net loss of $39.5 million the year prior, Finra says.

In addition to a boost from fines, the regulator’s portfolio returns grew $70.9 million year-on-year, according to the report.

Yet operating revenues fell 6% in 2016, which Finra president and CEO Robert Cook attributes to changes in its scope of regulatory functions, a drop in financing fees resulting from a lower number of initial and secondary public offerings, and lower continuous education fees as the regulator switched to online courses to cut costs and help its members. The regulator also has not increased member fees in five years, according to Cook. He says operating revenues are likely to fall 1% this year.

Robert Cook (Getty)

Finra’s costs, meanwhile, remained flat year-on-year, according to the report. The regulator had higher compensation and benefits expenses and spent significantly on data analytics and big data in 2016, but reined in overall costs at the employee level. At 3,500, the number of employees remained relatively unchanged, Finra says.

But the regulator was able to shave 9% in incentive compensation relative to total eligible salaries and cut administration costs of continuing education courses as it moved them online, according to the report. Finra also moved more than 1,100 workers from its pension plan to a defined contribution plan, which saved the regulator $80.2 million, Finra says.