FINRA Fines on Pace to Drop 73% in 2017

FINRA appears to be softening its enforcement actions in 2017, as it’s on pace to deliver only a fraction of the fines it reported last year. During the first half of 2017, FINRA imposed $23.4 million in fines, compared to $79.4 million a year earlier, according to law firm Eversheds Sutherland. If FINRA continues to assess fines in 2017 at the current rate, the year-end fines would total approximately $47 million, which would represent a 73% decrease from the total fines reported in 2016, and the lowest total since 2010, when FINRA ordered $42 million in fines.

Along with the reduction in fines, FINRA reported 459 disciplinary actions during the first six months of 2017, which is a 16% decline compared to the first six months of 2016 (547 disciplinary actions). However, restitution is up. According to the report, FINRA ordered $38.1 million in restitution during the first six months of 2017. If FINRA continues to order restitution at a similar pace, the 2017 year-end restitution amount would be approximately $76 million, representing a 171% increase from the total restitution reported in 2016 ($28 million).

Top Five Enforcement Fines

Sutherland also provided a breakdown of the top FINRA enforcement issues for 2017, measured by total fines. Below are the top five fine categories.

Trade Reporting: Trade Reporting resulted in the most FINRA fines for the first six months of 2017, up from its number three spot at the end of 2016 on Eversheds Sutherland’s Top Enforcement Issues list. So far, FINRA has reported 59 cases resulting in $8 million in fines in 2017.

Books and Records: Books and Records cases resulted in a total of $2.2 million in fines for 38 cases reported during the first six months of 2017. During the same period in 2016, FINRA reported 47 cases, resulting in $3.7 million in fines. For year-end 2016, FINRA reported $22.5 million in fines in connection with 99 books and records cases.

Mutual Funds: Mutual Fund cases resulted in a total of $754,000 in fines for 25 cases reported during the first half of 2017. Over the same time period in 2016, FINRA reported 20 cases resulting in $215,000 in fines. FINRA has been focused on the same types of mutual fund cases that it brought last year—sanctioning firms for selling mutual fund shares with front- or back-end sales charges to certain customers who were eligible to receive sales charge waivers.

Senior/Retiree: Senior-related cases resulted in a total of $558,000 in fines for 37 cases reported during the first six months of 2017. Compared to the same period in 2016, FINRA reported 11 cases, resulting in $37,500 in fines. It appears that FINRA is emphasizing these issues more, consistent with its past Exam Priorities Letters, which indicated an increasing focus on senior investors and retirement accounts.

Forms U4/U5/3070: Form U4/U5/3070 cases resulted in a total of $1.2 million in fines in 57 cases. Over the same period in 2016, FINRA reported 55 cases, resulting in $720,000 in fines. The 2016 year-end totals for Forms U4/U5/3070 were $6 million in fines in 134 cases. These cases—primarily against individual representatives—stem from FINRA’s increased emphasis on disclosures, typically focusing on tax liens, bankruptcies, criminal histories and other events on Forms U4.

To view the top five fines reported in 2016, click here.

Total Annual Fines (2013 – 2017)

The following graph details total annual fines and disciplinary actions reported by FINRA in the last five years. 

Year

Fines Reported

Disciplinary Actions

2013

$60 million

1535

2014

$134 million

1397

2015

$94 million

1462

2016

$176 million

1434

2017 $47 million (proj.) 918 (proj.)

 

To view the complete Eversheds Sutherland report, click here.

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