FINRA sign in New York. FINRA’s New York office (Photo: Ronald Pechtimaldjian/ALM)

The Financial Industry Regulatory Authority says it won’t raise fees this year or next. However, it is filing a proposal with the Securities and Exchange Commission to start doing just that in future years.  

According to a spokesperson, the filing should take place over the coming months, and the phased-in fee hikes should not start until 2022 at the earliest. 

“We do not plan to increase regulatory fees in 2020, marking our seventh consecutive year without a fee increase,” FINRA President and CEO Robert Cook said in the introduction to the group’s 2019 report released Wednesday.

The self-regulatory organization, though, is “preparing a proposal to raise regulatory fees that will be filed with the SEC,” Cook explained. The group has used some $650 million of its reserves since 2010.

In the group’s May 2020 budget report, Cook and FINRA Chair William Heyman explained:  “While raising fees will be necessary, our goal is to provide member firms with sufficient advance notice in order to plan accordingly, and to phase fee increases in over multiple years.

Earlier Fee Hikes

In mid-2012, FINRA proposed increases to several fees. For instance, it bumped the minimum fee for advertising-related filings from $100 to $125 and from $500 to $600 per expedited filing. 

It also planned to raise corporate financing fee, and to restructure fees for membership applications and trading activity.

The group’s 2013 pricing proposals also included changes to branch office assessment fees, as well as registration and disclosure fees. 

For example, the fee for fingerprinting rose from $13 to $30, with a 50% discount for electronic filings. The cost of disclosure reviews increased from $95 to $110.

2019 Net Loss

FINRA, a nonprofit organization, reported a net loss of about $46 million in 2019, down from nearly $69 million a year earlier, according to its latest annual report. 

The 2019 net loss stemmed from an operating loss of close to $124 million, mainly tied to higher expenses, including a new voluntary retirement program. This loss was partly offset by investment gains on its portfolio of almost $78 million. 

FINRA says it “continues to maintain a strong balance sheet to support its operations, with approximately $1.5 billion in equity as of December 2019” and to focus on keeping a strong balance sheet in order to “fulfill our regulatory obligations and mission.”

2020 Budget, Exec Pay

In its annual budget summary report, the SRO expects to have operating expenses of $951 million this year vs. $923 million last year. 

Member supervision, market regulation and enforcement work should cost $569 million, with other regulatory operations requiring some $148 million.

As for cash flowing into FINRA this year, about $495 million should come from regulatory fees, $281 million from user fees and $93 from contract service fees. 

The group expects to spend some 64% of its operating budget on compensation (excluding IT staff) and 24% on technology. Its pay costs for some 3,400 employees were $758.5 million in 2019 vs. $688.7 million in 2018.   

Cook is expected to earn at least $2.5 million in salary and incentive compensation in 2020. In 2019, he earned about $3 million, up from $2.2 million in 2018; these figures reflect his earnings after he donated some of his incentive pay to the FINRA Investor Education Fund.

Other executives expected to have total compensation of over $1 million include Todd Diganci, chief financial and administrative officer; Steven Randich, chief information officer; Robert Colby, chief legal officer; and Bari Havlik, head of member supervision. 

By the Numbers

FINRA conducted some 6,740 exams and reviews in 2019 vs. about 6,300 in 2018. 

It imposed $39.5 million in fines last year, down from $61 million a year earlier. It ordered nearly $28 million in restitution vs $25.5 million in 2018. 

In 2019, six firms were expelled, 415 financial advisors were suspended and 348 were barred versus 16 expulsions, 472 suspensions and 386 barred brokers in 2018. 

In addition, FINRA referred 827 cases to the Securities and Exchange Commission and other regulators last year, down from 919 a year earlier. 

— Check out  FINRA Elects Murray as Board Chair on ThinkAdvisor.