FINRA fines jump 60% in 2021 as caseload drops slightly

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Fines collected by Wall Street’s self-regulatory group, the Financial Industry Regulatory Authority, jumped 60% in 2021 from the previous year, despite the fact that the number of cases fell slightly compared to 2020, according to a new analysis conducted by partners at law firm Eversheds Sutherland.

Reported fines increased from $57 million to $91 million between 2020 and 2021, but the increase comes with the important caveat of the app’s gargantuan $57 million fine trading firm Robinhood in June last year for allegedly misleading clients and letting clients engage in improper options trading.

Without the Robinhood sanction, FINRA fines in 2021 would have totaled just $34 million, down 40% from 2020, according to Eversheds Sutherland’s U.S. partners Brian Rubin and Adam Pollet, who have wrote 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. “Beyond the record case, FINRA continued its nearly decade-long anti-money laundering efforts in 2021, while pursuing more ‘road and bolt’ issues such as adequacy and trade reports.

To determine the total amount of fines and cases, Rubin and Pollet reviewed FINRA’s monthly disciplinary reports for 2021, as well as its online disciplinary database and press releases containing further information on the penalties and disciplinary orders. Although the total amount of fines has increased, the number of cases with “very large fines” has decreased; in 2020, FINRA levied 10 “oversize” fines of $1 million or more, compared to eight in 2021 (although the amount of fines was higher last year, again due to the record fine of Robinhood).

The total amount of restitution also increased in 2021, with FINRA ordering approximately $49 million in restitution last year, a 96% increase from the $25 million in restitution the previous year. Although the 2021 total was significantly increased by a $12.6 million restitution order (also against Robinhood); even without that fine, restitution was up 45% from 2020, according to Rubin and Pollet.

In total, FINRA’s total sanctions count (including fines, restitution and reimbursement) was $144 million, a 53% jump from 2020 and the highest number since 2017. But the number of cases remained relatively flat year-on-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 the 591 total disciplinary actions of 2019 as well), according to the analysis.

The main enforcement issue was anti-money laundering, as had been the case for six consecutive years in Eversheds Sutherland’s previous analyzes of FINRA cases. In total, the regulator brought 16 such cases last year with $4.6 million in fines imposed (in 2020 there were fewer cases but a significantly higher total fines). high, with 14 cases and $16.2 million in fines.

Additionally, the firm’s analysis revealed 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 prosecuted a total of 54 cases involving lapses in fitness, but these cases resulted in a lower total number of fines and restitutions than ITU-related cases (FINRA’s other priorities included transaction reporting and municipal titles).

In the coming years, Rubin and Pollet warned companies to be prepared for increased actions and penalties related to the Securities and Exchange Commission’s (SEC) Best Interest Rule and Form CRS. Although FINRA did not bring any cases related to the SEC rules in 2021, it included both warrants in its risk review and oversight reports for the past two years, indicating that “regulators are lacing their gloves,” according to the report.

“As a result, firms may want to carefully consider FINRA’s findings, as well as those cited by the North American Securities Administrators Association (NASAA), or they may find themselves at the end of an enforcement action by FINRA.” , says the report.

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