FINRA fines hit record level in 2016

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FINRA whacked firms and their representatives with a record $176 million in fines in 2016, according to a report by law firm Eversheds Sutherland.

The previous record was set in 2014, when FINRA collected $134 million from wayward members.

The increase was largely due to the significant rise in the size and number of what the firm referred to as "supersized" fines of $1 million or more and "yuuuge" fines of $5 million or more.
In 2016, FINRA assessed 34 "supersized" fines, totaling more than $137 million. Of those, eight were "yuuuge" fines, totaling nearly $89 million. That compares with 2015, when the regulator collected $52.2 million from 18 fines greater than $1 million.

Firms that haven't been paying attention to the uptick in significant fines should pay attention now, said Brian L. Rubin, a partner of Eversheds Sutherland, noting that fines have increased more than six-fold since 2008.

"Although some have speculated a reduction in the Securities and Exchange's enforcement program, FINRA shows no sign of slowing down," he said in the report.

The trend is a signal that FINRA will continue to assess substantial fines against firms even where there is limited or no measurable harm to customers, according to the authors of the report.

The single largest fine in 2016 was levied against MetLife Securities, which paid $20 million for allegedly making negligent misrepresentations and omissions to customers about the costs and guarantees relating to replacement variable annuities.

Indeed, variable annuities emerged as one of top issues in the regulator's crosshairs. In 2016, FINRA reported $30.3 million in fines for 30 variable annuity cases, up from $10.4 million for 25 cases in 2015.

Other top enforcement actions involved anti-money laundering programs and misconduct in the area of trade reporting, unregistered securities and the maintenance of books and records.

While fines increased considerably, restitution decreased. FINRA reported restitution of approximately $26 million, down 71% from the record $96 million in restitution in 2015.

The number of firms it expelled also fell. In 2016, FINRA ejected 24 firms, down from 25 in 2015.

The regulator was tougher on individuals, barring a total of 517 reps in 2016, up 5% from the previous year.

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