2014 FINRA Fines Highest in Six Years

According to an annual analysis of FINRA sanctions released by law firm Sutherland Asbill & Brennan LLP, 2014 was a blockbuster year, with the regulator imposing fines of approximately $135 million—a 125% increase from the $60 million assessed in 2013.

This was the largest amount of fines imposed by FINRA since the financial crisis in 2008. In addition to the $135 million in fines, FINRA also ordered firms and their representatives to pay $52 million in restitution in 2014, a new record for FINRA, and an increase of 420% from $10 million in 2013.

• The chart below shows the fines reported by FINRA over the last seven years.

  

  The big increase in fines is noteworthy, especially since the number of cases reported by FINRA decreased significantly in 2014.

  As Sutherland Partner Brian L. Rubin noted, even though FINRA has not brought cases of the same magnitude as some SEC enforcement actions, firms and individuals must still take notice of the kind of year FINRA had, and the messages sent through its enforcement cases.

  The top five FINRA enforcement issues for 2014 measured by total fines assessed included:

  1. Research analyst and research report cases, where firms allegedly failed to properly communicate when soliciting investment banking business.
  2. Advertising cases, where firms allegedly had improper communication with the public in promotions and advertisements.
  3. Best execution cases, where firms allegedly made decisions that negatively affected customers.
  4. Anti-money laundering cases, where firms allegedly failed to have either adequate detection, monitoring, or investigation of suspicious trades.
  5. Trade reporting cases, where firms were fined for administrative or technical issues of concern to FINRA.

  Other emerging FINRA trends throughout the year also showed:

  • ‘Supersized’ fines. The amount of FINRA fines increased significantly from 2013 to 2014, but the number of cases decreased. This means fines in individual cases were much larger in 2014, often reaching at least $1 million. FINRA assessed 25 ‘supersized’ fines in 2014, resulting in more than $100 million in fines—including 10 cases that had a fine of at least $5 million.
  • Fewer suitability A sudden drop in suitability cases (matching customers with products and services that are appropriate for them) over 2013 and 2014 is likely due to FINRA’s completion of most (or all) of its cases related to the financial crisis.
  • A large increase in fines related to seniors and retirees. FINRA has often emphasized that protecting seniors and retirees is one of its key focus areas, but these types of cases typically didn’t result in significant fines— until 2014, when the situation abruptly changed. Cases involving allegations related to seniors and retirees resulted in $8 million in fines, an increase of 3,656% from 2013.

  It’s essential to get your firm set up with the best FINRA compliance practices and procedures to avoid being one of those hit with large fines in the coming years. Supportive technology, including an archiving solution to help supervise your firm’s digital communications, is an important part of the big picture in meeting FINRA’s expectations.