As the stock market plummeted in 2008 and chaos reigned on Wall Street, Finra regulators found less reason to levy fines and enforcement actions against broker-dealers and their registered reps, according to a study.
Last year, which was the first full year of existence for the Washington and New York-based
Financial Industry Regulatory Authority Inc., saw fines against firms and individuals plummet, decreasing 55% to $35 million in 2008.
That’s compared to $77.6 million in fines in 2007, when the former NASD and NYSE Regulation merged enforcement and arbitration operations, according to the report, “Finra 2008: An Oscar Winning Year?”
But that doesn’t mean Finra is going soft, according to the report, which warns that“2008 may have been the calm before the storm.”
Given the current financial crisis, it is likely that Finra’s enforcement activity will increase in 2009.”
The report released this morning was prepared by Deborah Heilizer and Brian Rubin, partners in Washington with Sutherland Asbill & Brennan LLP, along with Shanyn Gillespie, an associate with the firm.
Finra was tackling fewer “blockbuster” issues and cases that resulted in far fewer fines of more than $1 million, according to the report.
In 2008, Finra levied three such supersized fines, compared with 19 a year earlier.
“The reduction in blockbuster cases with outsized fines may be due, in part, to the industry’s adoption of policies and procedures in response” to major issues that surfaced in 2005, such as market timing, late trading, directed brokerage, revenue sharing and mutual fund share class issues,” the report said.
“It is also possible that Finra is no longer rulemaking by enforcement,” it said.
“Finally, Finra may have been affected by the SEC’s well-publicized retrenchment on the enforcement front.”
The top-five issues that Finra focused on in 2008 in terms of fines were: mutual funds, suitability, licensing, excessive brokerage compensation and electronic communications, according to the report.
For the full story, see the upcoming June 8 issue InvestmentNews.
