For the third year in a row, FINRA ended deep in the red, reporting a net loss in income of $84 million for 2011.
The self-regulatory organization has run into financial difficulties over the past year including an investigation by the Government Accountability Office into executive pay, the resignation of one of its top-earning lobbyists and leftover expenses from a joint deal with the NYSE.
The regulator’s annual financial report for 2011 also pointed to “non-recurring costs related to our new data center facilities in New York and Maryland, as well as increased integration costs to further FINRA’s cross market surveillance capabilities.”
Of the $54 million increase in expenses in 2011, FINRA stated that $16.1 million was due to opening the new data centers and terminating a portion of their technology services contract early. An additional $26.8 million was spent to boost cross market coverage and surveillance across the NYSE and The NASDAQ OMX Group.
The largest share of these expenses went toward a $36.9 million increase in compensation and benefits. Although yearly salaries decreased since 2009 for all but one of the top 10 executives at FINRA, the group took on a number of former NYSE employees and included a full year of leftover NYSE expenses in earnings reports for 2011. Compensation also increased because of new hires at the New York and Maryland data centers.
In addition, the company suffered significant losses from investments. Low interest rates hurt income, bringing in only $25 million in 2011 compared to $30.6 million in 2010. Equity markets did not do much to boost revenues for FINRA as ownership interests in hedge funds and limited partnerships incurred a $12.5 million loss.
“Contributing to the net loss were the waning economic conditions that created a decrease in the gross income assessment due to the continued decline in industry revenues over the last three years,” FINRA said in its annual report.
The firm recently notified its members that fees across the board would be increasing. Rates for operating measures such as corporate financing and disclosures, which had remained static for member firms since 1970, were raised in order to cover increasing demand for oversight and “the nature and complexity” of that oversight as well as new software and technology, according to FINRA’s announcement to broker-dealers.
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