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FINRA’s Top 5 Fine Categories in Potentially Record-Setting Year

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Fines levied by the Financial Industry Regulatory Authority during the first half of 2016 reached $79.4 million, which is on pace to potentially shatter the self-regulator’s record-setting $134 million in fines reported in 2014, according to the law firm Sutherland Asbill & Brennan.

Eleven “supersized” fines of $1 million or more—four of which were “ginormous” fines of $5 million or more—made up a hefty $57.1 million of the first-half 2016 total.

This compares to six “supersized” fines—including one “ginormous” fine—totaling $17.8 million that FINRA levied in the first six months of 2015, according to Sutherland’s annual analysis of the disciplinary actions filed by FINRA.

Total fines levied by FINRA in the first six months of 2016 increased 69% compared to the same period in 2015, and 19% compared to the same period in record-setting 2014, when FINRA assessed $134 million in fines, the Sutherland report states.  

The largest single fine against a firm so far in 2016 was $20 million for making negligent material misrepresentations and omissions regarding costs and benefits on variable annuity replacement applications for tens of thousands of customers over a five-year period.

Brian Rubin, head of Sutherland’s Washington litigation practice group, said in releasing the report that “to avoid being the subject of one of these actions, firms should consider focusing on ‘nuts and bolts’ issues like marketing and suitability of products, AML, trade reporting and supervisory policies and procedures.”

The report notes the two broker-dealer affiliates that were fined $17 million collectively this year for failing to establish and implement adequate anti-money laundering procedures, resulting in the firms’ failure to properly prevent or detect, investigate and report suspicious activity for several years.  

Meanwhile, restitution ordered by FINRA in the first six months of 2016 totaled $13.8 million, and is likely to show a drop from 2015 and 2014 levels.

“If FINRA continues to order restitution in 2016 at a similar pace, the year-end restitution amount would be nearly $28 million,” Sutherland noted, a 71% decrease from the total restitution FINRA reported in 2015 ($96 million), and a 12.5% decrease from 2014 ($32 million).

Despite the increase in fines during the first half of 2016, the number of disciplinary actions reported by FINRA decreased slightly compared with 2015. FINRA reported 547 disciplinary actions during the first six months of 2016, down 1% from the first six months of 2015 (553 disciplinary actions), the report notes.

According to Sutherland’s report, the following are the top FINRA enforcement issues for 2016 measured by total fines assessed:

  1. Variable Annuities:  $20.7 million in fines (7 cases).
  2. Due Diligence:  $19.7 million in fines (24 cases).
  3. Anti-Money Laundering:  $18.6 million in fines (18 cases).
  4. Trade Reporting:  $12.6 million in fines (65 cases).
  5. Notes/Bonds:  $6.2 million in fines (14 cases).

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