The Financial Industry Regulatory Authority brought 1,535 disciplinary actions against registered individuals and firms in 2013 and levied fines totaling more than $60 million, according to FINRA’s annual report, released Friday.
In addition, FINRA says that it expelled 24 firms from the securities industry, suspended 38 firms, barred 429 individuals and suspended 670 brokers from association with FINRA-regulated firms last year.
In addition to taking disciplinary action, the self-regulator says that it obtained $9.5 million in restitution for investors who were harmed last year, and through June has ordered more than $26 million in restitution.
FINRA CEO Richard Ketchum notes in the report that FINRA will continue to further its examination program via the controversial Comprehensive Automated Risk Data System (CARDS), which he says is “the next step — and an important leap forward — in the evolution of [FINRA’s] risk-based regulatory program.”
CARDS would be a rule-based program that would allow FINRA to collect — on a standardized, automated and regular basis — account information, as well as account activity and security identification information from firms.
“By providing us with ongoing ‘birds-eye view’ surveillance to complement our onsite exams, CARDS will allow us to quickly identify trends and product concentrations that are harmful to investors and take swift, responsive action,” Ketchum said.
Ketchum said in the report that “innovation, technology and risk mitigation” characterized FINRA’s operations in 2013, “and underpin our vision of the future of securities firm regulation.”
In 2013, FINRA invested nearly 25% of its annual budget in innovative technology, including cloud computing, in order to build sophisticated surveillance systems and process extraordinary amounts of data.
“We envision a new day in regulation, where, with the use of modern technology — particularly the capability to manage and analyze vast amounts of data — we can see more and different information in a new way,” Ketchum said. “Our goal is to expand our ability to identify, assess and manage risks in a cost-effective manner, and better focus our resources on the areas that pose the greatest threat to investors and the markets.”
Ketchum, who earned $2.5 million in total compensation last year, also noted FINRA’s drive to increase investors’ awareness of BrokerCheck, noting FINRA’s revised proposal released in April to require firms to include a readily apparent reference and link to BrokerCheck on any member firm’s website that is available to retail investors.
The latest round of comments regarding the proposal show that BDs still have issues with the BrokerCheck link plan.
Ketchum also noted the study that FINRA’s Office of the Chief Economist initiated in April of data in the Central Registration Depository (CRD) that is not currently disclosed in BrokerCheck. The study aims to gauge if there’s a reliable relationship between that information and any broker misconduct. FINRA’s Board also approved in February a proposed rule related to expungement of customer dispute information from CRD that would bar firms and brokers from conditioning the settlement of a dispute with a customer on the customer’s agreement not to oppose expungement of allegations in the complaint.
“The rule will help ensure that the CRD system continues to contain information that is critical to investor protection,” Ketchum said.
Financially, FINRA reported that 2013 was a “solid year,” as revenues increased 2.5% over 2012. Expenses remained relatively flat year over year, FINRA said, despite major expenditures, including $19.5 million in severance payments and $12.7 million in additional service credits to participants in the Voluntary Retirement Program.
Given the better-than-expected financial performance, the board approved a one-time discretionary rebate of $20 million, which FINRA said was distributed to active member firms at the end of last year. All firms in good standing received a $1,200 rebate to offset their minimum gross income assessment fee.
Both Susan Axelrod, executive vice president of regulatory operations and Bradley Bennett, EVP of enforcement, both earned a little more than $1 million last year.
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