Finra suffered a net loss of $68.7 million in 2018 despite increasing revenue and declining expenses, according to the regulator's
annual report released Thursday. The primary culprit was a 2.3% decline in its investment portfolio.
The
Financial Industry Regulatory Authority Inc.'s net revenue, and interest and
dividend income, was $946.1 million in 2018, up from $919 million in 2017, while expenses dropped to $975.3 million in 2018 from $992.3 million in 2017.
But the loss of $29.2 million, along with a $51.1 million drop in the investment portfolio (combined with other incremental input factors), resulted in a $68.7 million net loss. The portfolio, which represents the organization's financial reserves, fell 2.3% in 2018 compared to an 8.8% gain in 2017.
Finra took the investment losses in stride, noting that the fourth quarter was characterized by broad-based losses in global equity markets.
"Although the portfolio lost 2.3%, this loss is modest relative to several common market indices and standard portfolios of equities and bonds," the annual report states.
Finra recorded $1.5 billion in net assets at the end of 2018, compared to $1.6 billion in 2017. The regulator typically draws from investment returns from its balance sheet to fund regulatory operation expenses that exceed annual revenue.
In a letter accompanying the annual report, Finra chief executive Robert W. Cook wrote that Finra "continued to closely manage our spending." He also noted that over the last five years, Finra has a cumulative net income of $120.1 million and an average annual 0.4% decrease in annual expenses.
Mr. Cook reiterated that Finra projects expenses to again exceed operating revenues this year, as reported earlier in
its budget summary. For the sixth year in a row, Finra will not increase member fees and instead will draw from its financial reserves to fund regulatory operations.
EXAMS, FINES
In other highlights of the annual report, Finra conducted more than 6,300 exams in 2018, levied $61 million in fines and provided $25.5 million in restitution to harmed investors. The fine total was down from $64.9 million in 2017.
Last year, Finra expelled 16 firms, suspended 472 brokers and barred 386 brokers.
Four Finra executives earned more than $1 million in total compensation in 2018, including Mr. Cook ($2.9 million); Todd T. Diganci, executive vice president and chief financial and administrative officer ($1.4 million); Steven J. Randich, executive vice president and chief information officer ($1.3 million); and Robert L.D. Colby, executive vice president and chief legal officer ($1.1 million).
Finra regulates 3,712 broker-dealer firms and 629,112 registered representatives.
