The Financial Industry Regulatory Authority’s 2020 operating revenue is projected to be $868.9 million, flat compared to 2019 operating revenues.
FINRA is again projecting that its expenses will exceed operating revenue in 2020, which could result in a potential drawdown of the broker-dealer self-regulator’s reserves of $210.2 million, according to FINRA’s 2020 annual budget, released Friday.
FINRA’s actual net income or loss — to be reflected in the 2020 annual financial report — will ultimately include fines, investment returns and other accounting adjustments. That report is expected out in summer.
Revenue from regulatory fees — including fees that are primarily assessed according to firms’ gross revenue and trading volume, and firms’ total number of registered reps — is projected to increase, FINRA said.
The budget summary outlines how FINRA plans to deploy its resources in 2020 to meet its regulatory responsibilities.
The 2020 budget was developed and approved by FINRA’s Board of Governors before the nature and extent of the COVID-19 outbreak became apparent. “That event has significantly impacted the business and operations of many of our member firms, as well as how FINRA performs many of its functions,” FINRA states.
FINRA says it will continue to adjust its operations “as appropriate to best achieve our mission as this situation evolves. These adjustments and the pandemic’s impact on our member firms may have implications for our financial performance relative to the projections in the 2020 budget.”
Revenue from user fees is expected to remain flat; however, contract service fees are expected to decline. Operating expenses, meanwhile, are projected to increase 2.8% in 2020.
FINRA plans to spend $36.1 million to implement new initiatives, such as transforming its continuing education program and a redesign of the electronic Financial and Operational Combined Uniform Single Reports (eFOCUS) filing system, to help firms’ compliance.
Other initiatives support the ongoing transformation of FINRA’s enforcement program and examination and risk monitoring programs, and to enhance how the regulator manages regulatory cases.
The remaining $38.5 million is largely being deployed to complete initiatives already underway, such as the further implementation of machine learning in market surveillance programs, or to support mandatory initiatives, such as those required to meet regulatory requirements.
In 2020, FINRA has also budgeted nearly $80 million for “one-time extraordinary initiatives” that are anticipated to be infrequent in nature and not reflective of FINRA’s annual, recurring spending on capital initiatives.
The initiatives, which FINRA said are generally expected to be completed or otherwise funded by the end of 2022, include the multiyear transformation of externally facing digital platforms for member firms, including all of firm and representative registration systems; the restructuring of FINRA’s existing office space in New York by relocating certain functions to lower-cost properties; and the mandatory integration of data from the Consolidated Audit Trail (CAT) into existing FINRA surveillance patterns and applications, creation of new surveillance patterns, and development of a program to monitor industry member compliance with CAT reporting.
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