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FINRA Moves Ahead on BD Fee Hike

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The Financial Industry Regulatory Authority plans to increase some fees it charges broker-dealers to cope with the onslaught of new regulatory responsibilities — namely Regulation Best Interest, the Consolidated Audit Trail as well as financial products such as digital assets and increasingly intricate exchange-traded products.

On Friday, FINRA’s Board of Governors authorized the filing of the proposed rule change with the Securities and Exchange Commission.

FINRA has filed the proposed rule change to take effect immediately; however, implementation will not begin until Jan. 1, 2022.

FINRA designed the proposal to achieve the targeted revenue amount needed to correct FINRA’s structural deficit — expected to be $225 million by 2024 — with a package of specific fee increases “that best yielded an equitable overall fee increase across member firm size and type.”

The fee hikes will impact five areas: the Gross Income Assessment (GIA), Trading Activity Fee (TAF), Personnel Assessment (PA), registration and qualification examination fees phased in over a three-year period beginning in 2022.

FINRA CEO Robert Cook explained in FINRA’s 2019 annual report that FINRA was “preparing a proposal to raise regulatory fees.” The self regulator has used some $650 million of its reserves since 2010.

Cook explained the planned changes to broker-dealers in a letter on Friday.

The fee increases that are the subject of FINRA’s plan will be phased in gradually, with full implementation in 2024, to allow FINRA members sufficient time to plan for such fee increases, the self-regulator explained.

Despite increasing responsibilities, FINRA notes that it has not increased its core regulatory fees materially since 2010 and has not raised these fees at all since 2013.

FINRA has relied on its financial reserves, which originally derived from the sale of Nasdaq, to help support its regulatory mission.

From 2010 through 2019, FINRA explains, it used over $600 million of its financial reserves to fund operating losses and defer fee increases.

“On average, this support from FINRA’s financial reserves amounted to 6.6% of FINRA’s operating budget per year,” FINRA said.

FINRA states that its plan proposes “a proportional increase to fees it relies on to substantially fund its regulatory mission in a manner that preserves equitable fee allocation among FINRA members.”

“FINRA is targeting the proposed fee increases to generate an additional $225 million annually once fully implemented in 2024. This targeted revenue amount is calculated to bring FINRA’s revenues in line with its anticipated costs, based on FINRA’s projected revenue and costs.”


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