More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Fines and disciplinary actions issued by the Financial Industry Regulatory Authority (FINRA) for 2012 are on track to “significantly outpace” those for 2011, according to a mid-year review released Thursday by Sutherland Asbill & Brennan.
The results of the review, conducted by Sutherland Partners Deborah Heilizer and Brian Rubin, show that during the first half of 2012, FINRA ordered broker-dealers and associated persons to pay $39.4 million in fines.
“If fines continue to be assessed at this rate, 2012 will represent a 15% increase from the total fines reported by FINRA in 2011,” Rubin (left) said. “Essentially, we are looking at a jump from $68 million in 2011 to projected fines of $78.4 million in 2012.”
FINRA’s projected overall increase in fines and disciplinary actions would represent a “continuation of trends from recent years,” the Sutherland attorneys say. For instance, FINRA’s 2011 fines surpassed the total amount of 2010 fines by 51%. Similarly, the projected number of 2012 disciplinary actions would represent the fourth straight year of growth. In 2009, the number of disciplinary actions grew by 8% over 2008 and by 13% in both 2010 and 2011 over each prior year.
The Sutherland attorneys also found that FINRA reported 609 cases in the first half of 2012. “If cases are brought at this same rate for the rest of the year, the number of cases is projected to surpass 2011’s total disciplinary actions by nearly 9%,” the Sutherland lawyers said.
This year, Heilizer says, FINRA “appears to be leaning toward product-specific cases.”
Sutherland also points to the top five enforcement issues for FINRA during the first half of 2012, in terms of fines imposed:
- Research analyst communications: $11.9 million, 8 cases;
- Suitability: $6.6 million, 64 cases;
- Unit investment trusts: $3.9 million, 4 cases;
- Markups and/or markdowns: $3.7 million, 14 cases; and
- Municipal securities: $3.7 million, 24 cases.
Additional notable results of Sutherland’s 2012 midyear review include:
More Supersized Fines. FINRA has also been more aggressive in ordering “supersized” fines (fines of at least $1 million). During the first half of the year, it ordered seven such fines, totaling $24 million. If this trend continues, supersized fines will increase from the 10 supersized fines in 2011, which totalled $35 million.
Other Remediation. During the first half of 2012, FINRA has also ordered its members to pay $12.7 million of disgorgement and restitution payments.