Finra reveals how it spent $61 million in fine money last year

Regulator augmented fine proceeds with $20 million from reserves to bolster technology, examination program

Apr 25, 2019 @ 1:49 pm

By Mark Schoeff Jr.

Finra used fine proceeds last year to fund improvements in technology that helped the regulator better monitor markets and examine member firms, according to a report released Thursday.

The Financial Industry Regulatory Authority Inc. said it collected $61 million in fines in 2018. The board approved fine-related spending of $81.1 million, so Finra drew $20.1 million from its reserves to augment the total amount of fines. Finra reserves are essentially its investment portfolio, which totals about $1.7 billion.

The Finra board has determined that fine monies can be used to fund capital initiatives, educate investors, help firms comply with Finra rules or replenish the reserves.

In 2018, Finra spent $65.7 million on capital initiatives and strategic expenditures, including $16 million to migrate technology applications from data centers to cloud-based platforms. It spent $12 million to improve its examination and investigations program. It also invested $3.5 million in investor education.

For many years, Finra was criticized for not providing specifics on how it spends fine money. The document Finra released Thursday was its second annual report on fine expenditures.

"The report is part of a broader effort to promote greater transparency regarding the funding of our operations," Finra spokesman Josh Drobnyk wrote in an email.

Brighter illumination of Finra finances is one of the results of the Finra 360 self-assessment launched in 2017.

The report helps answer concerns that Finra levies fines in order to meet its budget, said Susan Light, partner at Katten Muchin Rosenman. She pointed out that Finra had identified $81 million in fine-eligible spending but only collected $61 million in fines in 2018, requiring it to dip into its reserves.

"This year, it just happened that [fines] added up to $61 million," said Ms. Light, a former Finra senior vice president and chief counsel for enforcement. "It's not pegged at a certain goal."

Finra fine totals have varied widely over the last several years: $64.9 million (2017), $173.8 million (a record in 2016), $93.8 million (2015) and $132.6 million (2014).

Detailing what it does with the money can bolster Finra's standing with the brokerages it oversees, investor watchdogs and other regulators, said Emily Gordy, partner at McGuireWoods.

"It's very important for their credibility," said Ms. Gordy, a former Finra senior vice president for enforcement. "It's important for all stakeholders to understand where the fine money is going."

Finra regulates 3,607 brokerages and 629,847 registered representatives. It is overseen by the Securities and Exchange Commission.

In addition to collecting $61 million in fines in 2018, Finra obtained $25.5 million in restitution for investors harmed by violations of Firna rules.


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