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FINRA Earnings Surge as Fines Double

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FINRA, the self-regulatory organization for the financial services industry, is doing very well financially.

Net income for the industry-funded Financial Industry Regulatory Authority soared in 2014 to $129 million from $1.7 million in 2013. The gain was largely due to an increase in revenues coupled with a decline in expenses. Revenues rose 10.6% to $996.6 million from $900.7 million. Expenses fell 3.4% to $964.8 million from $998.9 million.

“Financially, 2014 was a strong year for FINRA due primarily to an increase in revenue and our continued efforts to control costs,” wrote Chairman and CEO Richard Ketchum in a letter released along with the annual report.

As a result of the big increase in operating earnings, FINRA gave back a total $20 million to member firms. All active firms in good standing received a $1,200 rebate to offset their minimum Gross Income Assessment Fee. Firms also received a rebate based on their prorated share of regulatory fees paid to FINRA.

FINRA’s revenues rose as a result of increased fines and gains (realized and unrealized) in its trading portfolio.

FINRA collected more than $132 million from 645 fines and ordered restitution of more than $32 million to investors who had been harmed.  The amount of fines more than doubled from the year before though the number of fines fell. The average fine in 2014 was roughly $206,000, up sharply from $80,000 in 2013. Altogether, FINRA brought 1,397 disciplinary actions against registered individuals and firms in 2014.

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Investment gains in FINRA’s fixed income portfolio more than offset losses in its stock holdings. Fixed income returns surged to $34.6 million from just $2.4 million the previous year, while equity earnings fell almost 50% to $37.8 million.

FINRA cut costs primarily through a reduction in staff as a result of its Voluntary Retirement Program. A total of 176 employees retired from the organization. As a result of the program plus a decline in pension costs, total compensation and benefits — FINRA’s largest expense — fell 6.8% to $652.5 million.

Seven FINRA executives earned more than $1 million in total compensation in 2014 — four more than in 2013. Their compensation ranged from a low of $1.057 million for J. Bradley Bennett, executive vice president for enforcement (whose compensation fell slightly), to $2.89 million for Ketchum, whose salary rose more than 10%.

As of Dec. 31, 2014, FINRA and its 3,500 employees were overseeing nearly 4,1000 brokerage firms and 636,700 individual securities representatives.

— Check out What FINRA’s Top Execs Earn: ‘Living Large’  on ThinkAdvisor.