Over the course of 2016, FINRA expelled 24 firms from membership and fined offenders for a total of $176 million. The largest fine amounted to $25 million, paid by MetLife Securities over negligent misrepresentations and omissions in connection with variable annuity replacements.
A total of $27,9 million from monetary sanctions corresponded to customer restitutions. In the MetLife case, this amounted to $5 million.
On average, FINRA fined 31 offenders per month. There were many serial offenders, with 46 firms fined more than once throughout the year and 11 firms fined more than four times.
Mid-year Review 2017
During the first six months of 2017, FINRA fined 181 firms, averaging 30 a month, which shows little variation from last year. The total of fines handed out over that period was $132.8 million. If the trend persists, fines this year could be significantly larger than in 2016.
The number of firms expelled was 14, also not very different from a similar period last year. The average fine, however, rose to $733,800 in the first half of 2017; a 61% increase from the 2016 average.
FINRA continues to uphold similar priorities as in 2016, but there are some new additions.
For example, a focus on protecting investors from brokers with a less-than-stellar track record. FINRA will look very close into how firms hire such brokers and into the efficiency of their inspection programs and supervisory systems. “There could not be a more important place for us to spend our time and resources,” FINRA sources commented during a recent panel in DC.
Anti-money laundering (AML) will remain a focus, and the reporting of suspicious activity will become central to compliance with FINRA rules.
Another focus the Regulatory Authority has made very clear through both its communications strategy and the implementation of new rules is the protection of elder investors. Firms dealing with this type of customers need to pay close attention to the recent amendment to Rule 4512 and new Rule 2165.
Adequate and compliant record-keeping is also a focus, and we have seen recent and severe disciplinary action over this particular issue. For example, the $2 million fines to State Street Global Markets and Acorns Securities over improper filing of customer records.
FINRA has also been increasingly interested on cracking down on compliance officers who fail to guarantee adherence to regulations.
In late July, FINRA announced the creation of a centralized enforcement office.
The move will bring together two enforcement teams within the organization, “one handling disciplinary actions related to trading-based matters found through Market Regulation’s surveillance and examination programs, and the other handling cases referred from other regulatory oversight divisions including Member Regulation, Corporate Financing, the Office of Fraud Detection and Market Intelligence, and Advertising Regulation,” according to a press release.
“A vigorous and effective enforcement program is central to FINRA’s mission of protecting investors and promoting market integrity. After careful study, we have determined that this new structure will better enable this critical program to achieve those important goals in the years to come,” FINRA’s CEO Robert Cook has commented.
As analysts expected Trump’s agenda of rolling back regulations like Dodd-Frank to reduce the number of FINRA and SEC examinations, we can see that the first half of 2017 has shown no significant reduction in FINRA probes or fines.
Firms and individual brokers must do their due diligence to ensure they are in full compliance with FINRA rules. Advice from a seasoned securities lawyer is the key to staying on the right side of the law.
At risk of a FINRA enforcement inquiry or action? Connect with an experienced Securities Lawyer at Herskovits PLLC early on – we defend individuals and financial firms in securities regulatory actions. Act quickly for a proactive defense.
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