FINRA stepped up its game last year, issuing more disciplinary actions and making a number of investments to increase the scope of its regulatory oversight.

FINRA brought a total of 1,541 disciplinary actions, levied more than $69 million in fines and ordered restitution of $34 million to investors in 2012, according to its annual report, which was released Tuesday. This compares to 1,488 disciplinary actions, $71.9 million in fines and $19.4 million in restitution ordered in 2011. The average fine in 2012 was $92,700, down from $98,100 the prior year.

The regulator reported it had expelled 30 firms, barred 294 individuals and suspended another 549 compared to 21 firms expelled, 329 individuals barred and 475 individuals suspended in 2011. Meanwhile, the number of investor complaints received dropped to 2,785, which was just over half of the peak of 5,405 complaints in 2008.

“In 2012, we enhanced our regulatory programs to more fully protect investors and further assure the public that America’s financial markets are fairly regulated,” FINRA CEO Richard Ketchum wrote in the report. “In today’s rapidly evolving markets, it’s more important than ever that we remain vigilant in the pursuit of our mission and respond quickly when problems arise.”

FINRA reported that they had been working to streamline their enforcement operations through a targeted, risk-based approach. In October, FINRA launched the first series of pilots of the new risk-based exam platform. As part of the program, staff is able to red flag offices and firms that are dealing in more complex business models and products. The regulator made a total of 1,846 routine examinations, more than 800 branch office examinations (up modestly from below 800 last year) and 5,100 cause examinations that resulted from customer complaints or regulatory tips.

“The pilot has given us valuable insight, and as a next step we are extending the pilot to include firms that have more complex business models and products,” Ketchum wrote. “We expect to begin using the platform for all new exams by the end of this year.”

The regulator also said it was putting in a bid to build and maintain the consolidated audit trial, a system recently approved by the SEC that will collect data on every order, cancellation, modification and trade execution for all exchange-listed equities and options across all U.S. markets, which “will allow FINRA to conduct broader, more effective cross-market surveillance and be better positioned to detect improper conduct at an earlier stage,” Ketchum said.


Financially, FINRA bounced back from a series of bad years. The regulator’s equity earnings and other investments pulled in $59.1 million, helping it swing to a total profit of $10.5 million in 2012 after four years in the red and an $84 million loss the previous year. Revenue from its operations, meanwhile, remained relatively flat at around $880 million and expenses dropped $2 million to $993 million.

“2012 was a solid year for FINRA financially, as the fee increases implemented during the year and the cost savings across technology and back-office functions are reflected in our improved results over the prior year,” FINRA wrote in its release. “Furthermore, our modernized fee structure and continued cost savings initiatives are expected to better position FINRA financially over the course of the next two years.”

FINRA’s revenue wasn’t the only one on the rise. Ketchum’s total compensation rose by $50,000 in 2012 to a total of $2,629,705, which included salary, incentive compensation, deferred compensation and other benefits. Overall, employee compensation and benefits constituted 63% of total expenses in 2012, according to the annual report.

“Our expenses are largely driven by employee-related costs, as we seek to attract, develop and retain a diverse group of talented staff, particularly in the highly specialized areas of regulation and technology, to enable FINRA to carry out its regulatory mandate in today’s ever-changing markets,” FINRA reported.


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