FINRA Fines up in First Half of 2018

FINRA fines have increased slightly in the first half of 2018, while restitution has dropped from last year, according to a recent report conducted by Eversheds Sutherland. Numbers from the report are based on FINRA’s monthly disciplinary actions notice and other FINRA action publications and press releases.

FINRA reports $25.9 million in fines through June 2018 compared to $23.5 million reported during the same period in 2017. While FINRA fines tend to increase significantly in the second half of the year, if FINRA continues to assess fines at the current rate, the year-end fines would total approximately $51.8 million, compared to the $65 million in 2017. That would represent a 20% decrease and would be the lowest total since 2010, when FINRA ordered $42 million fines.

FINRA restitution has been significantly down this year. It ordered $4.9 million in restitution during the first six months of 2018 compared to the $38.1 million reported during the same period in 2017. FINRA’s CEO, meanwhile, was reported urging the industry not to take comfort in the sharp drop in fines last year.

“Our commitment to enforcement has in no way changed,” said Robert Cook in his remarks at the Securities Industry Markets Association conference last week. “It’s not like we said to the enforcement program, ‘Hey, don’t bring as many enforcement cases.’ We certainly would like to bring cases that really matter and get at real investor harm.”

The largest single fine against a firm this year was $5.3 million for allegedly having systematic and anti-money laundering compliance failures, including failing to have a reasonable AML program in place to monitor and detect suspicious transactions, as well as other violations including financial, recordkeeping and operational violations. The SEC separately assessed an $860,000 civil penalty against the same firm for the same conduct.

Despite the slight increase in fines during the first half of 2018, the number of disciplinary actions reported by FINRA decreased compared to 2017. FINRA reported 342 disciplinary actions during the first six months of 2018, which is a 28 percent decline compared to the first half of 2017.

The top enforcement issues for FINRA during the first half of 2018 in terms of total fines were:

  • Anti-Money Laundering: $9.4 million in fines (11 cases)
  • Trade Reporting: $8.4 million in fines (37 cases)
  • Suitability: $5.6 million in fines (54 cases)
  • Variable Annuities: $4.6 million in fines (14 cases)
  • Books and Records: $3.5 million in fines (33 cases)

As a refresher, below demonstrates the top five fines from the first half of 2017:

  • Trade Reporting: $8 million in fines (59 cases)
  • Books and Records: $2.2 million in fines (38 cases)
  • Mutual Funds: $754,000 in fines (25 cases)
  • Senior/Retiree: $558,000 in fines (37 cases)
  • Firms U4/U5/3070: $1.2 million fines (57 cases)

To view the complete Eversheds Sutherland report, click here.

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