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Regulation and Compliance > Federal Regulation > FINRA

FINRA Goes Heavy on the Fines

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The Financial Industry Regulatory Authority is on a pace to far exceed this year the number of fines and disciplinary actions against financial advisors it imposed last year, according to a review by an industry law firm.

Lawyers at Sutherland Asbill & Brennan LLP found 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,” said Sutherland partner Brian L. Rubin.

“Essentially, we are looking at a jump from $68 million in 2011 to projected fines of $78.4 million in 2012.” 

A review in March of 2011 fines by Rubin and fellow partner Partners Deborah G. Heilizer found that FINRA fines that year jumped 51% from 2010.

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.

Furthermore, the attorneys found that 609 cases were reported by FINRA during 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 two lawyers said.

Robert Miller, president of the National Association of Insurance and Financial Advisors, voiced concern about the findings.

“As the mid-year review states, the projected increase in FINRA fines and disciplinary actions represents a trend, with increases in fines over the last four years,” Miller said.

He said most NAIFA members are community-based small business owners, who provide affordable insurance and financial services to the middle-income market. He also noted that NAIFA members “are also some of the most comprehensively regulated individuals in the financial services industry.”

Miller said that NAIFA “believes the best way to protect consumers from bad actors is through strong and effective supervision within financial services firms, and regular, periodic inspections.”

At the same time, Miller said that FINRA needs to be mindful of the impact increased costs could have on NAIFA members and on consumers.

“If the cost of doing business rises significantly, NAIFA members would have little choice but to pass some of those costs on to their clients or to discontinue some of the affordable services they typically provide to middle-market consumers,” Miller said.

Other findings of the Rubin/ Heilizer survey was that 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 “supersized” fines totalling $24 million, the Sutherland survey found. Rubin and Heilizer said that if this trend continues, “supersized” fines will increase from the 10 “supersized” fines in 2011, which totaled $35 million. 

Another finding was that during the first half of 2012, FINRA has also ordered its members to pay $12.7 million of disgorgement and restitution payments.


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