FINRA fines and disciplinary actions in 2011 increased sharply, a result of the regulator’s more robust market surveillance and whistleblower protections, according to a FINRA Sanctions Survey released by a Washington law firm.
Fines in 2011 jumped 51% to $68 million, up from $45 million in 2010. It was a major reversal from 2010, when there was a $5 million drop in the total amount of fines imposed. Fines grew at a faster rate than the number of actions filed, because the regulator imposed more $1 million fines on firms than they did in the previous year, according to Brian Rubin a partner at Sutherland Asbill & Brennan, the firm that conducted the survey.
The number of disciplinary actions and fines together increased by about 13% in 2011, and the regulator barred 14% more individuals from the securities industry in 2011 than it did the previous year, Sutherland Asbill & Brennan announced.
The regulatory actions are an ongoing response to widespread mistrust of the financial markets, largely due to massive Ponzi schemes operated by Bernard Madoff and R. Allen Stanford.
“They are trying to be more aggressive,” Rubin says. “They are doing a lot of things to catch the bad guys.”
FINRA has also imposed rules that require firms to report the representatives’ violations. The regulator is also carrying out more risk-based exams, Rubin says.
Issues surrounding advertising, short selling, auction-rate securities, suitability and improper Form U4, U5, and Rule 3070 topped the list of cases in 2011, in that order, according to the survey.
Sanctions in advertising, for instance, jumped to $21.1 million in 2011, up from $4.7 million in 2010. Advertising cases are easier to make, and FINRA has been expanding the types of cases it has brought under rules concerning advertising, Rubin says. For instance, the rules have historically applied to communications with the public.
“More recently, FINRA has brought cases for internal use only and intranet material,” Rubin says.
Donna Mitchell writes for Financial Planning.