Finra conducted nearly twice as many branch exams in 2011 than 2010. Enforcement actions were up, as well. Expect more of the same in the coming year.
Finra has been busy this year.
The self-regulatory organization has meted out $63 million in fines to firms and individuals thus far in 2011. The Financial Industry Regulatory Authority Inc. also has ordered another $19 million of ill-gotten gains to be returned to investors. That's nearly 70% more than the funds the it ordered to be paid in 2010.
What's more, the self-regulator for brokers reconfigured its examination program to focus on identifying areas most critical to investor safety. Part of the revamping of broker-dealer examinations included more focus on what goes on at local branches. The result? Finra conducted more than 800 branch exams this year. That's nearly double the number from 2010.
“Our top priority is to protect investors,” said Finra chief executive Richard Ketchum. “We are continually incorporating measures designed to root out products and practices that harm investors, as well as providing information and tools that help investors save and invest for their future and avoid costly mistakes.”
Those areas believed to be of the greatest risk to investors are now set at “urgent” and a review of these matters expedited to make sure “the appropriate level of resources and expertise are assigned to them, as well as to facilitate coordination and information sharing across departments,” Finra said.
The regulator also increased the number of people in district offices with expertise of specific firms and increased their real-time monitoring of business and financial changes, according to Finra. This helps Finra target their exams.
The increased scrutiny led to 1,411 disciplinary actions against firms and reps, up from 1,310 in 2010. Finra also expelled 17 firms from the securities industry, barred 317 people and suspended 432 brokers.
Finra's investigators also sent more than 600 cases of potential fraud to the Securities and Exchange Commission, state regulators or law enforcement agencies for additional investigation, including 286 insider trading referrals, according to the regulator.
In one case Finra announced last week, Wells Fargo Advisors agreed to pay a $2 million fine to settle allegations that a former broker bilked more than 20 elderly clients by selling them unsuitable investments. Those investments generated more than $1 million in commissions for the rep and losses for many investors. Wells Fargo neither admitted nor denied the allegations.
Finra also played an early role in identifying many high-profile cases that other regulators brought against firms and individuals. For example: A tip from the SRO led the FBI in April to arrest the founder of Great Atlantic Group Inc. for allegedly running a $12 million Ponzi scheme.
The industry self-regulator also targeted firms this year that improperly sold or promoted structured products for retail investors, and warned investors about nontraded real estate investment trusts.
Finra is seeking to become the SRO for investment advisers, which are now subject to reviews by the SEC and states. The Dodd-Frank financial reform act calls for increased oversight of advisers, and Congress must decide whether the SEC should be given additional resources to boost exams or be allowed to charge user fees, or let an outside SRO take over the role.
