Finra achieves blockbuster financial year in 2021

Finra reported $218.8 million in net income in 2021, a $199 million increase over 2021, as market volatility generated a big increase in trading fees.

The soaring financial results reported by the Financial Industry Regulatory Authority Inc. consisted of operating income of $112 million, investment gains of $105.3 million and other income of $1.5 million, the broker-dealer self-regulator said in its 2021 annual report. The document was posted on the Finra website Thursday.

Operating revenue increased 17.7% in 2021 to $1.3 billion, compared to $1.1 billion in 2020, thanks in part to gyrating markets that produced a 15% increase in trading activity fees, which reached their highest level in more than a decade, Finra CEO Robert W. Cook wrote in a message accompanying the report.

Increased market volumes also led to a 10-year high in fixed-income and equity securities trade reporting, and Finra achieved an 84% increase in corporate financing fees in 2021 as a result of record-breaking initial and secondary public offerings.

Finra also collected $103 million in fines, an 80.7% increase over $57 million in 2020. The boost came largely from a $57 million fine paid by Robinhood Financial, which was part of Finra’s record $70 million penalty against the online brokerage.

A huge increase in net investment gains also contributed to Finra’s hefty net income. Finra’s portfolio generated $105.3 million in gains in 2021 compared to $3.9 million in 2020, as it achieved a 6.5% return last year compared to a 1.2% return in 2020.

Finra’s expenses increased last year, rising to $1.3 billion from $1.1 billion. The regulator said its major expense is employee-related costs. Finra had 3,700 employees at the end of last year compared to 3,600 at the end of 2020.

Although its 2021 results were robust, Finra anticipates that operating revenue and investment returns will decline this year, Cook said.

“Overall, current projections continue to suggest that expenditures will outpace revenues over the next several years, even taking into account the impact of previously announced fee increases filed with the SEC,” Cook wrote in the annual report. “Accordingly, we expect that over time we will draw down the reserve portfolio to support operating and capital needs and ensure we continue to fulfill our regulatory responsibilities.”

Cook was one of four Finra executives who earned more than $1 million in compensation in 2021. Cook made $3.3 million. The others were Todd T. Diganci, executive vice president and chief financial and administrative officer ($1.5 million); Steven J. Randich, executive vice president and chief information officer ($1.6 million); and Robert L. D. Colby, executive vice president and chief legal officer ($1.3 million).

Finra also provided enforcement statistics in the report. In addition to imposing $103 million in fines, which included $12.9 million in disgorgement, the regulator sent $47 million in restitution to harmed investors, expelled one brokerage, suspended 386 brokers and barred 269 brokers from the industry. Finra oversees about 3,394 brokerages and more than 612,457 registered representatives.