Corporate law firm Eversheds Sutherland has recently completed its annual study of the disciplinary action reported by FINRA in 2023. Although both the number of disciplinary actions and orders of restitution declined compared to previous years, fines increased significantly compared to fines imposed in 2022 due to a single fine of $24 million.

Top 5 Enforcement Issued Measured by Total Fines Assessed

Found in Eversheds Sutherland’s report are the top five fine categories of 2023, measured by total fines assessed. Those are as follows:

1. Spoofing*

2. Trade Reporting

3. Anti money Laundering/Bank Security Act

4. Regulation Best Interest (Reg BI)*

5. Suitability

* This enforcement issue is the first time it has appeared on Eversheds Sutherland’s Top Enforcement issues list.

Trends Shifting

In 2023, FINRA reported a 63% increase in fines, reaching $89 million compared to $54.5 million in 2022. However, a single $24 million fine against one firm significantly influenced this total; without it, the fines would have amounted to $65 million, representing a more modest 19% increase from 2022. Additionally, the number of “supersized” fines ($1 million or more) increased from 11 in 2022 to 14 in 2023, while the number of “mega” fines ($5 million or more) doubled from 2022 to 2023.

Sanctions Shift Focus

In 2023, FINRA reported a significant decrease in restitution orders, with only $7 million compared to $21 million in 2022, corresponding to a reduction in “supersized” restitution orders of $1 million or more. Despite this, total monetary sanctions ordered by FINRA increased by 25% to $101 million in 2023 from $81 million in 2022. Additionally, the number of disciplinary actions reported by FINRA decreased for the second consecutive year, with 453 actions in 2023, representing a 9% decrease from 2022 and a 13% decrease from 2021.

24’ Predictions

Decline in Restitution Continues: FINRA has seen a significant decline in restitution ordered over the past few years, falling from $47 million in 2021 to $21 million in 2022 and further to just $7 million in 2023. While FINRA has previously emphasized the importance of returning wrongfully obtained funds to harmed investors, the organization has recently suggested that proactive remediation by firms with a strong compliance culture could lead to a decrease in the amount of restitution FINRA needs to order. The impact of this shift will be closely monitored in 2024.

Reg BI: FINRA’s enforcement of Regulation Best Interest (Reg BI) has gained momentum since its first action in 2022, becoming a top issue in 2023. This trend is expected to continue in 2024 and beyond, with FINRA expanding its Reg BI examinations and investigations, potentially leading to a decreased role for the SEC in this area.

Crypto: FINRA launched a targeted exam in November 2022 to assess firms’ communications with customers regarding crypto assets, focusing on compliance with FINRA Rule 2210. The exam revealed that around 70% of the reviewed communications had potential substantive violations, including false statements and unsound comparisons. With the SEC’s recent approval of spot bitcoin Exchange-Traded Products (ETPs), compliance with Rule 2210 for crypto assets has become even more crucial for broker-dealers offering these products to retail investors. To read the whole report, click here.