Finra income soars due to increased fines, rising regulatory fees

A combination of increased revenue, including a doubling of money raised through fines, and lower expenses helped Finra significantly increase net income last year.

Increased revenue, including a doubling of money raised through fines, helped Finra significantly increase net income in 2014, according to the regulator’s annual report.

The Financial Industry Regulatory Authority Inc., an industry-funded organization, obtained $129 million in net income in 2014, a sharp increase from the $1.7 million it reported in 2013. Revenue increased to $996.6 million from $900.7 million, while expenses dropped to $964.8 million from $998.9 million, in part due to a voluntary retirement plan.

“Financially, 2014 was a strong year for Finra due primarily to an increase in revenue and our continued efforts to control costs,” Finra chairman and chief executive Richard G. Ketchum wrote in a letter accompanying the annual report, which was released Monday.

Thanks to its financial results, Finra distributed a $20 million “discretionary rebate” to member firms for the second year in a row. In addition, each Finra member also received a $1,200 rebate to offset its annual gross-income assessment fee and a rebate based on its pro-rated share of regulatory fees.

The organization was able to reduce its expenses thanks to saving on personnel costs through a voluntary retirement plan. Finra said that 176 employees retired in 2014. Finra has a staff of 3,500.

Seven Finra executives earned more than $1 million in compensation in 2014, up from four in 2013. They included Mr. Ketchum ($2.89 million, up from $2.62 million in 2013), Todd Diganci, executive vice president and chief financial officer ($1.29 million, up from $1.24 million), Steven Randich, executive vice president and chief information officer ($1.20 million, up from $514,825 in 2013 when he worked only part of the year); Robert Colby, executive vice president and chief legal officer ($1.17 million, up from $948,420), Susan Axelrod, executive vice president for regulatory operations ($1.10 million, up from $1.01 million), J. Bradley Bennett, executive vice president for enforcement ($1.057 million, down from $1.064) and Thomas Gira, executive vice president for market regulation ($1.02 million, up from $961,898).

Regulatory revenue, which includes trading activity fees, gross income, personnel and branch office assessments, increased to $428.1 million in 2014 from $414.6 million in 2013. Finra attributed the rise to increased trading volumes.

Although the number of monetary sanctions decreased in 2014 to 645 from 754 in 2013, the average fine increased to $205,600 from $80,100 in 2013. Last year, Finra brought 1,397 disciplinary actions against member firms and registered representatives and assessed $132.6 million in fines. In 2013, it levied $60.4 million in fines.

In 2014, the organization barred 481 brokers and 18 firms from the industry while suspending five firms and 705 brokers. It ordered $32.3 million in restitution to harmed investors.

Finra’s investments also did well in 2014, rising to $2.076 billion from $1.954 billion in 2013. Finra’s portfolio return was 5.8%. Its net investment gain “was primarily driven by the performance of our fixed income portfolio,” Finra wrote in the annual report.

Finra regulates 4,100 brokerage firms, 161,600 branch offices and about 636,700 brokers.