In its recently released annual study, Eversheds Sutherland found that FINRA reported fewer disciplinary actions in 2022 than the previous year by a whopping 56%. The fall of these actions follows the trend from the previous three years. The significant decrease in fines and restitution, however, is largely accredited to the monumental fine brought against an online brokerage firm in 2021.
Fines Drop By…Well, A Lot.
FINRA reported a significant drop in fees in 2022, decreasing from $103 million in 2021 to $45 million. The 2021 figures, however, included a one-time, record-setting $57 million fine against a single firm. Without it, the difference would have been reduced to a mere 2% from 2021 to 2022.
While the large contrast in dollar signs can be primarily attributed to a specific instance, 2022 did see a significant increase in the number of very large fines handed out to firms over the course of the year. In 2022, FINRA assessed 11 fines of $1 million or more (what we call “supersized” fines), compared to eight such fines in 2021. Additionally, FINRA assessed two “mega” fines of $5 million or more in 2022 versus one in 2021.
Restitution Falls Alongside
The amount of restitution ordered by FINRA in 2022 fell substantially as well. FINRA ordered restitution of approximately $21 million, which was down 55% from the $47 million in restitution ordered in 2021. The main culprit behind the decline is the decrease in “supersized” restitution orders of $1 million or more. FINRA reported that only three supersized restitution orders totaling $17 million were issued in 2022, compared to the ten supersized restitution orders in 2021, adding up to approximately $42 million.
As a result, all monetary sanctions ordered in 2022 totaled to $72 million, representing a 52% decrease from 2021’s $150 million in total sanctions.
FINRA Top 5 Disciplinary Issues
Found in Eversheds Sutherland’s report are the top five fine categories of 2022, measured by total fines assessed. Those are as follows:
- Books and Records ($14.8 million in fines)
- Research/Analyst ($9.3 million in fines)
- Consumer Protection Rule ($9 million in fines)
- Trade Reporting ($7.9 million in fines)
- Best Execution ($4 million in fines)
’23 Possible Trends
Reg BI – 2022 saw FINRA’s first Regulation Best Interest sanctions in action with a case against a registered representative who failed to act in his customer’s best interest when he recommended a series of transactions, including in-and-out trading that generated more than $54,000 in commissions in less than a year and a half. FINRA suspended the representative for six months and fined him $5,000, saying they “anticipate that this is the first of many Reg BI cases we will see in the coming months and years”.
Off-Channel Communication Cases – In 2022, FINRA brought 14 cases dealing with off-channel communications, resulting in fines totaling $2.1 million, the largest of these cases fining one firm $1.5 million. However, when comparing the number of fines the SEC has issued in 2022, FINRA’s falls way behind. Because of this, FINRA is expected to “ramp up” the number of cases this year, saying that “it is likely that FINRA will bring significant cases where reps have communicated about securities business matters on their personal devices, using text messages, WhatsApp, Signal, WeChat, and other applications, as well as personal email accounts.”
To read the full report, click here.
