Finra fines down in 2015, but experts agree long-term trend is upward
In 2015, Finra issued $93.9 million in fines, down from $134 million in 2014, although the bulk of the difference can be attributed to a single $43.5 million fine in 2014 which served as an outlier. While fines may be down, 2015 saw increases in Finra restitution, disciplinary actions, and litigation/prosecution, growing 198%, 5%, and 10%, respectively. It’s apparent that Finra has nonetheless been active and investor protection is top-of-mind.
“They are clearly exercising more of their ability to aggressively seek the range of sanctions,” said Daniel Nathan, a partner at the law firm Morvillo and a former Finra vice president and head of regional enforcement. “It goes beyond simple fines. It’s more about investor protection.”
But most experts agree that fines are on an up-trend despite the decline in 2015.
“Even though the total fines are far lower than last year, they are much higher than they had been during the prior several years, when Finra assessed fines in the $50 million to $70 million range,” said Brian Rubin, a partner at Sutherland Asbill & Brennan.
“The general trend is focused on a ratcheting upward of fines, and that is likely to continue,” Mr. Nathan concurred.
Additionally, Finra recently released their annual exam priorities letter, which is a good indicator of their focus for the forthcoming year. In this year’s letter, Finra indicated that compliance culture will be a priority and firms will need to ensure that proactive compliance is top-of-mind.
Compliance culture – or lack thereof – could serve as a driver for additional fines in 2016, especially if compliance is not central and pervasive. It’s important that firms focus on compliance and find better, more proactive ways to manage risk and violation exposure. Unfortunately, many firms simply aren’t prepared, putting additional weight behind the expected increase in fines.
In summary, Finra fines could trend upward and examination priorities will focus on proactive compliance culture, and as such firms need to ingrain compliance in all of their processes and policies. Anything short of that could open the door to large fines and negative headlines. And firms operating with legacy, reactive, and ineffective risk and violation identification will perhaps face more difficulty than firms that have taken a more proactive approach.
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