Finra fines, complaints drop as market improves

Suitability fines have decreased, but new regulatory priorities have emerged

Feb 26, 2014 @ 12:01 am

By Mason Braswell

finra, regulation, suitability, record keeping, fines, actions
+ Zoom

New regulatory trouble spots are cropping up in the securities industry even as customer complaints drop and the financial crisis recedes farther into the rearview mirror.

Enforcement actions related to record keeping and advertising were on the rise last year while suitability claims and the total amount of fines have been falling, according to data released by the Financial Industry Regulatory Authority Inc. and a report by the law firm Sutherland Asbill & Brennan.

Total fines reported fell by 27% to $57 million last year from $78 million in 2012, according to Sutherland's report.

The number of major fines fell and penalties of more than $1 million dropped to about $18.5 million, from $43 million in 2012, Sutherland reported.

“The fines have likely fallen because Finra has run through its inventory of cases stemming from the financial crisis of 2007 to 2008,” said Brian Rubin, who heads Sutherland's litigation and enforcement group. “To a large degree, Finra is bringing more basic cases that don't generate high fines.”

Sutherland's data are compiled from the Finra's monthly release of disciplinary actions and may not include some smaller or unreported actions, Mr. Rubin said.

Moreover, some fines that were ordered in 2012 may not have shown up in monthly releases until last year, so the numbers don't match Finra's reported statistics in some cases, he said.

+ Zoom
(Source: Finra Statistics and Data)

But even by Finra's total, fines and complaints have been declining.

Finra disciplinary fines last year dropped for a second year to $65 million after peaking at $71.9 million in 2011, according to totals reported by the regulator.

Investor complaints have also steadily declined from 5,067 in 2012 to less than half, 2,334 last year, according to statistics provided by Finra.

“Finra doesn't get complaints when accounts are profitable,” said Mark Astarita, managing member of law firm Beam & Astarita. “If you were in the market since 2009, you could have doubled your money.”

Cases related to suitability, a common complaint in product failure cases related to the financial crisis, dropped 38% to 73 last year from 117 in 2012, according to Sutherland's report.

Fines for suitability violations dropped to $5.1 million last year, from $19.4 million in 2012.

The total number of enforcement actions brought, however, remained almost flat at 1,535 last year, according to Finra data.

Problems were cropping up in other areas, according to Sutherland.

The highest fine ordered by Finra's enforcement unit last year was a $7.5 million charge against LPL Financial, related to the firm's failure to review and retain hundreds of millions of e-mails, according to Sutherland's report.

+ Zoom
(Source: Sutherland Asbill & Brennan LLP; Finra)

Fines related to electronic communications, which include retention and supervision of e-mails, jumped 132% to $15.1 million last year from $6.5 million in 2012, despite the fact that Finra brought just 66 cases, nearly the same as the year before, according to the survey.

Fines in this area have been rising since 2011, when the regulator levied a total of $3.6 million in electronic communication cases, according to Sutherland.


What do you think?

View comments

Recommended for you

Latest news & opinion

Sen. Gary Peters brings broker background to work every day on Capitol Hill

Michigan Democrat resists ripping up DOL fiduciary rule but would be open to some changes.

DOL fiduciary rule causing DC-plan record keepers to change business with insurance agents

Principal has communicated that independent agents must change their business models to keep receiving compensation.

DOL fiduciary rule opponents want to push implementation back until 2019

ICI, Chamber of Commerce among groups asking for delay, while Democratic lawmakers call on DOL to keep to its earlier planned schedule of Jan. 1, 2018.

Take 5: Vanguard's new CIO Greg Davis talks bonds, stocks and costs

Having just stepped into the role, this veteran of the firm now oversees $3.8 trillion in assets in more than 300 mutual funds and exchange-traded funds.

Tech companies deploy behavioral finance tools for advisers

They seek to turn knowing more about clients into growing more revenue.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print