FINRA does not issue fines to balance its budget

SEC targets 79
March 20, 2019
CFTC $1 Million Penalty
April 3, 2019

FINRA chief says FINRA does not issue fines to balance its budget

Writing in InvestmentNews, Reporter Mark Schoeff, Jr. recorded Financial Industry Regulatory Authority (FINRA) CEO Robert Cook’s assertion that the regulator does not issue fines as a strategy to balance its budget. The Authority, he says, has plenty of money in its coffers.

“Fines,” Cook told attendees at the March Securities Industry and Financial Markets Association Conference, “are not collected for budget purposes. We don’t have a target for fines.”

Nonetheless, when FINRA released its budget summary for 2019, that budget projects potential operating expenses will exceed operating revenues by about $76 million, and that the shortfall may require the Authority to draw about $186 million from its reserves. And, the regulator intends to do so to avoid raising membership fees for the sixth year in a row.

Fines okay/membership cost increase, no way

According to FINRA, the reserves it will draw down are the equivalent of the regulator’s investment portfolio, which is approximately $1.7 billion. According to Schoeff’s report, FINRA’s goal is to maintain reserves at a level above annual expenses, which in 2019 are projected to be about $1 billion. This would give FINRA a backup account of $700 million to use to cover any shortfalls.

“We have extra cash in the till, so to speak,” Mr. Cook said, noting that FINRA sets its budget assuming fines are zero. The actual fine level can vary widely from year to year. In 2016, FINRA levied a record $173.8 million. Fines In 2017 dropped more than 50 percent to $64.9 million.

FINRA Executive Vice President and head of enforcement Susan Schroeder explained further, saying that fines are not an end in themselves, but are a way to send compliance messages. “We think of fines as a way to tell that story,” she said.

In his conversation with Schoeff, Cook acknowledged concerns about whether FINRA aims to hit a fine target every year, noting that is why the organization emphasizes that its budget doesn’t depend on such revenue. “I appreciate the question, and it’s something we’re trying to address through greater transparency and clarity in our thinking,” he said.

In the next few weeks, Finra is expected to release its second annual accounting of how it spends fine money.

So FINRA fines are a compliance enforcer, not a fundraising strategy?

Yes. So what does that mean for FINRA members and others in the financial community? That compliance still matters. That’s where Patrina comes in. We’ve built our business based on helping organizations stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective, designated third-party services, our comprehensive 8-module compliance solution, and compliant data capture & file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered.

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