FINRA Fines May Hit Record Level Against Finance Industry This Year: Report

The non-governmental regulatory authority that oversees the financial industry in the United States is on track to hand out a record amount in fines against investment firms and brokers, who it says broke the rules and took advantage of customers in 2016, according to a new report. 

According to an analysis by Sutherland Asbill and Brennan LLP, the Financial Industry Regulatory Authority (FINRA) is likely to “shatter” its record in dishing out financial industry fines by year’s end. Sutherland announced the findings in a press release issued October 4.

FINRA’s last fine record was set in 2014, when it assessed $134 million against investment firms and brokerages. In the first half of 2016, FINRA indicates that it has already fined institutions and brokers $79.4 million. The Sutherland analysis predicts that if FINRA keeps at that pace, this year could end with $159 million in FINRA fines. That compares to only $94 million in fines FINRA assessed in all of 2015.

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This year, despite the increase in fines, FINRA appears to be on track to order less restitution payments that will return money to customers this year. In the first half of 2016, the authority only ordered financial institutions to pay back $13.8 million, meaning that at that rate, restitutions by the end of 2016 would be only about $28 million. That is a 71% decrease from the $96 million in restitution it ordered in 2015, and would not even match the 2014 amount of $32 million.

The report indicates that the increase in fines has been driven by a number of cases that resulted in unusually large fines of $1 million or more. There were 11 such large fines in the first half of 2016, with four of them involving fines of $5 million or more.

The result is that while the fine amounts are up, the number of disciplinary actions is actually slightly down. There were a total of 547 disciplinary actions reported in the first half of this year, compared to 553 such actions in the first half of 2015.

“These statistics bear out what we’ve been hearing from FINRA Staff: we are in a whole new world,” Brian L. Rubin, head of Sutherland’s Washington litigation practice group, said in the press release. “Firms and individuals will need to adjust their mindsets regarding fine levels in disciplinary cases. To try to avoid being the subject of one of these actions, firms should consider focusing on ‘nuts and bolts’ issues like marketing and suitability of products, AML, trade reporting, and supervisory policies and procedures.”

FINRA oversees all securities firms doing business in the United States, providing arbitration services for claims against stock brokers and serving to protect investors by making sure the securities industry operates fairly and honestly.

FINRA was created in July 2007 as a successor to the National Association of Securities Dealers, to arbitrate stock broker fraud claims that can include charges of breach of contract, breach of fiduciary duty, negligence, misrepresentation, unauthorized trading and other claims that investments were improperly handled.


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