Fines collected by Wall Street’s self-regulatory group, the Financial Industry Regulatory Authority, jumped by 60% in 2021 compared to the prior year, despite the fact that the number of cases dropped slightly compared to 2020, according to a new analysis conducted by partners at the law firm Eversheds Sutherland.
The amount of reported fines increased to $91 million from $57 million between 2020 and 2021, but the boost comes with the large caveat of the gargantuan $57 million fine levied against trading app Robinhood in June of last year for allegedly misleading customers and letting clients engage in inappropriate options trading.
Without the Robinhood penalty, FINRA’s 2021 fines would have totaled only $34 million, a 40% decline compared to 2020, according to Eversheds Sutherland U.S. partners Brian Rubin and Adam Pollet, who penned the analysis.
“Last year, the amount of fines and restitution increased significantly from the previous year, indicating that FINRA’s enforcement program is as robust as ever,” Rubin said. “Looking beyond the record-setting case, FINRA continued its nearly decade-long focus on anti-money laundering in 2021, while also pursuing more ‘nuts and bolts’ issues like suitability and trade reporting.”
To determine the total amount of fines and cases, Rubin and Pollet examined FINRA’s monthly disciplinary reports for 2021, as well as its Disciplinary Actions Online Database and press releases with further information on penalties and disciplinary orders. Though the total amount of fines increased, the number of cases with “very large fines” decreased; in 2020, FINRA levied 10 “supersized” penalties of $1 million or more, compared to eight in 2021 (though the amount of fines was higher last year, again due to the record-breaking Robinhood fine).
The total restitution amount was also up in 2021, with FINRA ordering about $49 million in restitution last year, a 96% boost from the $25 million in restitution from the prior year. Although the 2021 total was significantly boosted by a $12.6 million restitution order (also against Robinhood); even without that fine restitution rose 45% from 2020, according to Rubin and Pollet.
In all, the total number of FINRA sanctions (including, fines, restitution and disgorgement) was $144 million, a 53% jump from 2020 and the highest number since 2017. But the number of cases remained relatively stagnant year-to-year, with a 6% decrease in the number of disciplinary actions, from 602 in 2020 to 569 the following year (it was also lower than 2019’s 591 total disciplinary actions, as well), according to the analysis.
The top enforcement issue was anti-money laundering, as it had been for six consecutive years in Eversheds Sutherland’s previous analyses of FINRA records. In all, the regulatory authority brought 16 such cases last year with $4.6 million levied in fines (in 2020, there was a lower case number but significantly higher fine total, with 14 cases and $16.2 million in fines.
Additionally, the firm’s analysis found that FINRA also focused on cases involving unit investment trusts (UITs), with five cases and more than $13 million in fines and restitution.
In contrast, FINRA pursued 54 total cases involving suitability lapses, but these cases resulted in a lower number of total fines and restitution than UIT-related cases (other FINRA focuses included trade reporting and municipal securities).
In the coming years, Rubin and Pollet warned firms to be ready for increased actions and penalties related to the Securities and Exchange Commission’s (SEC) Regulation Best Interest and Form CRS. While FINRA didn’t bring any cases related to the SEC rules in 2021, it has included both mandates in its examination and risk monitoring reports for the past two years, indicating the “regulators are lacing up their gloves,” according to the report.
“Therefore, firms may want to carefully review FINRA’s findings, as well as those cited by the North American Securities Administrators Association (NASAA), or they may find themselves on the receiving end of a FINRA enforcement action,” the report read.
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