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FINRA Increasing Enforcement Actions, Fines

A new report on FINRA's 2012 actions suggests the self-regulatory body is getting tougher.

FINRA’s enforcement actions rose for the fourth straight year last year, and the dollar amount of fines the self-regulatory agency levied jumped 15%. The amount of sanctions imposed in due diligence cases, meanwhile, climbed to $12.8 million, a 700% increase from $1.6 million in due diligence fines in 2011.

FINRA reported filing 1,541 disciplinary actions in 2012, an increase of 3.6% from the 1,488 cases the regulator initiated in 2011, according to an annual survey and analysis released Wednesday by the Washington, D.C. law firm Sutherland Asbill & Brennan, which represents advisor and broker-dealer firms being prosecuted by the SEC, FINRA and other regulators. Fines totaled $78.2 million last year, up from $68 million in 2011.

“The most significant finding is that the number of cases and amount of fines has continued to increase,” Brian Rubin, a Sutherland partner, told Financial Planning. “Part of this probably still relates to a fallout from the market crises. Part of it also may have been driven by FINRA’s desire to show it could be a tough regulator, to position itself as the self-regulating organization for advisors.”

FINRA declined to comment.


Suitability cases were the top enforcement issue for FINRA last year, according to the Sutherland survey.  FINRA assessed fines totaling $19.4 million in cases involving suitability allegations -- a 152% increase from the $7.7 million in fines reported in 2011. The regulator heard 117 suitability cases last year, a 10% increase from the 106 cases reported in 2011.

The surge in suitability fines was largely driven by the $7.5 million in fines assessed in four ETF-related cases and “supersized” fines of $1 million-plus in cases involving complex products such as reverse convertible notes and unit investment trusts, the report said.

FINRA also brought 62 due diligence cases in 2012, up substantially from 2011's total of 44 cases.

“FINRA is focusing on suitability, due diligence and complex products because broker-dealers are sometimes trying to meet the needs of their clients with alternative products in today’s low interest rate environment,” Rubin said.


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