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Regulation and Compliance > Federal Regulation > FINRA

FINRA's 2019 Budget Points to 'Day of Reckoning' Ahead: Ex-Enforcement Chief

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The Financial Industry Regulatory Authority said Thursday in releasing its 2019 budget that while no fee-rate increases will hit broker-dealers this year, fee increases may be on the horizon.

In its 2019 budget, FINRA projects revenue to be flat compared with 2018, with operating revenue at $846.9 million.

FINRA states that it could spend $185.8 million in reserves to make up its revenue shortfall, an uptick from the $136 million in reserves allotted last year.

“The significant drop-off in enforcement activity puts FINRA in the unenviable position of relying on its reserves to fund up to 20% of its 2019 budget,” former enforcement director Brad Bennett said. “FINRA continues to spend considerable sums on technology projects whose costs significantly exceed potential revenue. Unless it can find some way to increase revenues, it will face a day of reckoning that will require it to significantly reduce its non-core expenditures.”

“The Budget Summary continues to reflect the intentionally conservative methodology we adopted last year, which assumes there are no fine moneys available to support capital initiatives, and that there are no investment gains or losses on our financial reserves,” stated FINRA CEO Robert Cook and FINRA Chairman William Heyman, in the budget’s introduction.

“Fine moneys are excluded because they are not driven by revenue targets. Under our Financial Guiding Principles, they are accounted for separately and their use must be approved by the Board of Governors or its Finance Committee for enumerated purposes.”

They continued, “Consistent with these principles, we will not seek to increase member fees this year — the sixth consecutive year without a fee increase — and instead will close any shortfall with the use of our reserves.”

FINRA plans to publish a separate report describing the use of fine moneys from 2018, as the broker-dealer self regulator did for 2017.

“Taking into account these assumptions, the difference between our projected 2019 revenues and expenses could result in a draw on our reserves of $185.8 million.”

“Revenue from regulatory fees — including fees that are primarily assessed according to firms’ gross revenue and trading volume, and firms’ total number of registered representatives — are projected to increase,” FINRA states.

“However, user fees, which comprise approximately one-third of operating revenue, are expected to decrease, primarily driven by lower registration fees, changes in transparency services’ trade volume in the over-the-counter market and declining testing exam volume.”

FINRA released its first annual budget last year.

Operating revenue in 2019 is projected to decline slightly from last year, the budget states.

FINRA derives nearly half of its revenues from industry fees that are assessed according to firms’ gross revenue and trading volume, as well as firms’ total number of registered reps. “Overall revenue generated through these three fees is projected to increase due to higher firm revenues partially offset by lower trading volume. At the same time, user fees, including registration fees and testing fees, are projected to decline.”

FINRA said that funds from its 2019 budget will be allocated as follows among these key functions:

  • Member supervision: 31%
  • Market regulation: 13%
  • Enforcement: 11%
  • Transparency services: 7%
  • Regulation and disclosure: 7%
  • Dispute resolution: 5%


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