More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
Financial Industry Regulatory Authority fines are on track to hit a three-year low in 2013 — likely down 41% from the dollar amount assessed last year. But disciplinary actions have only fallen slightly this year.
During the first half of 2013, FINRA reported $23 million of fines in its monthly Disciplinary and Other FINRA Actions report, according to the law firm Sutherland Asbill and Brennan. In contrast, during the first half of 2012, FINRA reported fining broker-dealers and associated persons $39 million, and it assessed fines of $78 million for all of 2012.
Brian Rubin, head of Sutherland’s securities litigation and enforcement group, says that sanctions are likely dropping because “FINRA has likely brought most of its significant cases related to the market crisis.” In addition, he noted that “FINRA has brought far fewer ‘supersize’ fines, which is what we call fines of $1 million or more.”
During the first six months of 2012, FINRA reported seven supersize fines, totaling $24 million. Only two such fines, totaling $2.25 million, had been published in FINRA’s monthly disciplinary reports through June 2013, Sutherland reported.
Indeed, Sutherland says that if FINRA continues at the current rate, this year’s fines will fall 41% from the total fines reported by the regulator in 2012, down to an estimated $46 million from $78 million. That would be the lowest total since $45 million in fines were imposed in 2010.
Despite the dramatic drop in the size of fines, the number of cases reported by FINRA during the first half of the year was nearly identical to the period a year ago.
The top five enforcement issues for FINRA during the first half of 2013, in terms of the total amount of fines reported in Disciplinary and Other FINRA Actions, were:
1. Municipal securities: $4.3 million, 25 cases
2. Electronic communications: $2.5 million, 27 cases
3. Mutual funds: $2.1 million, 18 cases
4. Suitability: $1.7 million, 31 cases
5. Short selling: $1.5 million, 16 cases
While fines are dropping, the number of disciplinary actions has only fallen slightly.
During the first six months of 2012, FINRA reported 609 disciplinary actions, compared with 597 actions in the first six months of 2013, a decline of 2%.
The percentage of actions involving firms, as opposed to individuals, was higher during the first six months of 2013 than in 2012. Between January and June 2012, 208 of the 609 (34%) cases involved charges against firms. This percentage grew to 38% (226 of 597 cases) during the first six months of 2013.
In July, FINRA reported in Disciplinary and Other FINRA Actions that it fined a firm $7.5 million and ordered the firm to pay $1.5 million in restitution to investors for systematic electronic email retention and review issues, Sutherland reported.
In addition, FINRA reported in August that it imposed supersize fines against three other firms. “It remains to be seen whether these recent cases are precursors of increased disciplinary activity in the last half of 2013 or simply blips on FINRA’s enforcement radar,” Sutherland said.
Check out Former SEC Compliance Chief Tells White: Stop Suing Compliance Officers on ThinkAdvisor.