“FINRA’s large increase in fines cannot be ignored,” said Brian Rubin, co-author of the Sutherland study, in a statement. “Even though FINRA has not brought cases of the same magnitude as some of the SEC’s enforcement actions, firms and individuals must still sit up and take notice of the kind of year FINRA had and the messages sent through its enforcement cases.”
According to FINRA’s Statistical Review, 1,397 disciplinary actions were filed in 2014, a decrease of 9% from the 1,535 cases the regulator initiated in 2013. Despite the fact that this was the second year in a row that the number of FINRA cases has declined, the number of cases filed has still grown by 30% since 2008 and from 1,073 in 2008 to the 1,397 cases filed in 2014, the law firm Sutherland Asbill & Brennan found.
Sutherland’s analysis also found that the number of firms expelled by FINRA declined from 24 in 2013 to 18 in 2014, a decrease of 25% (following a 20% decrease in the number of firms expelled during the prior year).
However, the number of individuals suspended or barred rose in 2014 — with individuals suspended jumping from 670 in 2013 to 705 in 2014, an increase of 5%, and the number of individuals barred increasing from 429 in 2013 to 481 in 2014, an increase of 12%.
The top five enforcement issues measured by total fines assessed in 2014 came from cases involving the following:
Research analyst and research reports, which led to more fines than any other cases in 2014. FINRA fined firms and their reps more than $59 million in 19 research analyst and research report cases. The bulk of this sum was levied in December on 10 banks whose analysts in 2010 offered favorable research to Toys R Us in an attempt to win a role in the initial public offering it was considering. FINRA fined the banks a total of $43.5 million. In 2013, FINRA ordered only $1 million in research analyst-related fines.
Advertising cases resulted in the second-highest amount of fines for FINRA in 2014 as 31 cases resulted in $17.2 million in total fines. Although the number of advertising cases dropped by 42% from 2013 to 2014, from 53 to 31, the amount of fines increased by 514%, from $2.8 million to $17.2 million.
Best execution cases resulted in $14 million in fines in 2014, the third-largest total for the year. This represented a 112% increase from the $6.6 million in fines that were assessed in 2013. This substantial increase in best execution fines was nearly matched by the increase in the number of best execution cases, as this number rose from 48 cases in 2013 to 83 cases in 2014, an increase of 79%.
Anti-money laundering (AML) cases resulted in the fourth-largest amount of FINRA fines in 2014, with 34 AML cases in 2014 and $13.2 million in fines. This represented a decrease of 6% from the 36 AML cases brought in 2013, but a 144% increase from the $5.4 million in fines imposed in 2013 AML cases. FINRA levied its biggest AML fine ever against Brown Brothers Harriman in February 2014. The firm was fined $8 million for failing to monitor penny stock trades — some to undisclosed customers in countries known for bank secrecy — that netted its clients at least $850 million.
Trade reporting cases. FINRA brought 176 trade reporting cases in 2014, a decrease of 11% from the 198 cases initiated in 2013. The fines in trade reporting cases moved down from $12.1 million in 2013 to $11.1 million in 2014, a decrease of 8%.
— Related on ThinkAdvisor: