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Regulation and Compliance > Federal Regulation > FINRA

FINRA Posts a Net Loss for the Year

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The Financial Industry Regulatory Authority reported a net loss of $68.7 million in 2018, driven primarily by an operating loss of $29.2 million, coupled with investment losses and other expenses of $39.5 million, according to the broker-dealer self-regulator’s annual financial report, released Thursday.

Over the last five years, FINRA has reported cumulative net income of $120.1 million, as well as an average annual decrease in expenses of 0.4%, FINRA CEO Robert Cook stated in the annual  report.

“FINRA continues to maintain a strong balance sheet to support its operations, with approximately $1.5 billion in equity (net assets) as of Dec. 31, 2018,” Cook said.

The primary driver of the $68.7 million loss was a 2.3% loss on FINRA’s investment portfolio in 2018.

FINRA’s portfolio return was 8.8% in 2017 versus the 2.3% loss in 2018.

“The investment climate of 2018 was characterized by a volatile fourth quarter that led to broad-based losses across global equity markets, as measured by the S&P 500 (-4.4%) and the MSCI All Country World Index (-8.9%),” a FINRA spokesperson said.

“Bonds finished the year with roughly flat results. That being said, FINRA’s loss was modest relative to several common market indices and standard portfolios of equities and bonds.”

FINRA has relied on investment returns from its balance sheet to fund operating expenditures in excess of its annual revenues in any given year. When our investments post modest returns, or, as was the case with 2018, lose money, we traditionally end up reporting a net loss on our GAAP financial statements for the year.

In FINRA’s 2019 Annual Budget, published earlier this year, the SRO projected its expenses will again exceed its operating revenues in 2019.

However, FINRA will not increase member fees in 2019, marking the sixth consecutive year without a fee increase, but is again budgeting for a potential drawdown, if necessary, on  financial reserves to fund regulatory operations.

2018 Fines

The total amount of fines decreased by $3.9 million in 2018 to $61 million.

FINRA conducted more than 6,300 exams and reviews last year, and issued $25.5 million in restitution to harmed investors. The SRO also expelled 16 firms, suspended 472 brokers and barred 386.

— Check out SEC Reg BI Involves ‘Massive Implementation’ Process: Peirce on ThinkAdvisor.


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