Finra upped fines by 15 percent last year, study shows

Number of disciplinary actions up as well

Mar 17, 2013 @ 12:01 am

By Dan Jamieson

Finra brought 4% more disciplinary cases last year than in 2011 and amped up fines by 15%, according to a study released last week by Sutherland Asbill & Brennan LLP.

2012 was the fourth consecutive year of growth in the number of cases filed by the Financial Industry Regulatory Authority Inc. and the second straight year of growth in the amount of fines.

Finra filed a total of 1,541 disciplinary actions last year and assessed $78.2 million in fines, the study found.


Fines were up because of some big cases, including $7.5 million in fines assessed in four exchange-traded-fund cases and several $1 million-plus cases involving complex products, said Brian Rubin, a partner at Sutherland.

“It could be that Finra is upping the ante, or flexing their muscles to show that they're well-positioned to regulate [registered investment advisers],” he said.

Finra also is being more aggressive in obtaining restitution for investors, the study found.

Last year, the regulator ordered firms and representatives to pay a record $34 million in restitution to investors, up 80% from the $19 million in restitution assessed in 2011, according to Finra data cited by Sutherland.

Suitability and due-diligence cases led the list of enforcement actions last year, according to the Sutherland survey.

Finra brought 117 suitability cases last year, a 10% increase from the 106 cases reported in 2011.


That is about double the numbers from 2008 and 2009, Sutherland said.

The regulator also filed 62 due-diligence cases last year, resulting in fines of $12.8 million.

In 2011, Finra reported 44 cases involving due-diligence violations, which resulted in just $1.6 million in fines, according to the study.

Problems with complex products are behind the increased number of suitability and due-diligence cases, Mr. Rubin said.

“With interest rates so low, a number of firms [are] putting together alternative investments and complex products” with attractive yields, such as collateralized mortgage obligations, real estate investment trusts, private placements and ETFs, he said.

Several of the large fines last year involved reverse convertible notes and unit investment trusts, according to the study.

Mr. Rubin expects that suitability and due-diligence violations will continue to top Finra's list of actions as rates continue to stay low.

Finra spokeswoman Nancy Condon declined to comment.


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