Eversheds Sutherland recently completed its annual review of the disciplinary actions reported by the Financial Industry Regulatory Authority (FINRA) and found that in 2021 the overall total of fines and restitution rose significantly, despite a decrease in the number of cases compared with 2020. FINRA reported $91 million in fines for all of 2021, a 60% increase from 2020 and the highest total since 2016.
Fines Rise by 60% (Well, Sort of)
At first glance, this number may seem excessively large, however, not when you consider that well over half of the total fines ordered in 2021 — $57 million, to be exact — came from just one “record-setting” fine FINRA ordered a “FinTech firm” to pay in June of last year. While the name of this company is not provided directly in the report, an inquisitive investigation would indicate that it was none other than Robinhood Financial. Without the Robinhood fine, FINRA’s total 2021 fines would have been 40% lower than in 2020, according to the report. So take that 60% jump with a grain of salt.
Restitution is Up
In 2021, restitution ordered by FINRA also increased substantially. FINRA ordered restitution of approximately $49 million in 2021, with the total driven in large part by one case with restitution of approximately $12.6 million. That total is up 96% from the $25 million in restitution ordered in 2020.
Overall Cases Fell Flat
The number of cases reported by FINRA remained mostly flat last year. FINRA reported 569 disciplinary actions in 2021, a 6% decrease from the 602 disciplinary actions in 2020, and a decrease of 4% from the 591 disciplinary actions in 2019. The percentage of cases against only firms (as opposed to cases against individuals or jointly against both firms and individuals) was 20%, decreasing from 23% during 2020.
FINRA Top Five Fine Categories
In the report, Eversheds Sutherland also laid out FINRA’s top five fine categories measured by total fines assessed. Those are as follows:
- Anti-Money Laundering ($4.6 million in fines)
- Unit Investment Trusts ($3.9 million in fines)
- Suitability ($3.9 million in fines)
- Trade Reporting ($3.4 million in fines)
- Municipal Securities ($3 million in fines)
Cases Involving Reg BI/Form CRS
According to Eversheds Sutherland, while FINRA did not bring any cases related to Regulation Best Interest or Form CRS in 2021, it appears that the regulators are “lacing up their gloves.” To date, the SEC has brought 42 cases against firms for failing to timely provide customers with Form CRS, and in some instances, failing to provide certain required information. For the past two years, however, FINRA has included Reg BI and Form CRS in its examination and risk monitoring report, which indicates a potential surge in activity in the coming years.
To read the full report, click here.