Finra CEO Robert Cook cautions industry not to take comfort in sharp drop in fines last year

A recent third-party report showed Finra fines up in the first half of 2018, but the regulator declined to project this year's numbers, saying only that penalties fluctuate

Oct 2, 2018 @ 2:08 pm

By Mark Schoeff Jr.

Finra chief executive Robert W. Cook cautioned the financial industry Tuesday not to take comfort in the recent sharp drop in total fines imposed by the regulator.

The Financial Industry Regulatory Authority Inc. levied $173.8 million in fines in 2016, but that number fell to $64.9 million in 2017, according to the organization's statistics.

"Should we read anything into that? I don't think so," Mr. Cook said at the Securities Industry and Financial Markets Association annual conference in Washington. "There's ebbs and flows in and out of fines. There's a pipeline that sometimes extends for a number of years. It doesn't necessarily always tell you about what's happening now."

A recent study by the law firm Eversheds Sutherland shows Finra fines have risen slightly in the first half of this year. The regulator reported $25.9 in fines through June compared to $23.5 million in the same period in 2017.

That rate puts Finra on a pace to dole out $51.8 million in fines by the end of the year if fines remain steady, which would be the lowest amount since 2010 ($42 million), according to Eversheds Sutherland.

Mr. Cook declined to project this year's fine haul.

"A lot of the fines get finalized the second half of the year, but I'm not going to try to speculate year over year what that will be," Mr. Cook told reporters on the sidelines of the conference.

During the conference session, Mr. Cook said any decline in fine totals doesn't reflect a softening of Finra's disciplinary efforts.

"Certainly our commitment to enforcement has in no way changed," he said. "It's not like we said to the enforcement program, 'Hey, don't bring as many enforcement cases.' We certainly would like to bring cases that really matter and get at real investor harm."

The regulator does not budget for a certain fine amount each year.

"I think we're bringing some great cases this year," he said. "We'll see where the numbers end up."


For his SIFMA appearance, Mr. Cook elaborated on the regulator's announcement it would streamline its examination program.

Currently, one Finra examination team might examine a firm regarding financials, while another team examines sales practices.

Under the new approach, Finra will examine firms based on their business models, such as a large firm, a small merger and acquisition firm, or a small introducing broker.

"If we organize around the models, then our examiners can understand the model and the risk it presents better," Mr. Cook told reporters. "They can then pull in the resources they need to drill down on any particular area of risk, like liquidity and capital. They can have a more consolidated approach to the exam."

The goal is to conduct a review that makes sense for the targeted firm.

Mr. Cook wants Finra members to say afterward: "They asked me the tough questions about my own business that I would ask if I were auditing myself," as opposed to, "Gee, they asked a lot of questions that didn't seem to relate to what I do."


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