FINRA projects budget shortfall, but member fees won’t rise (for now)

Register now

FINRA’s costs are rising and the regulator is once again projecting a budget shortfall, according to the regulator’s 2019 budget summary.

But FINRA will not be passing on the costs to its members in the form of fees — at least not yet.

FINRA said it expects operating expenses to rise almost 4% to $922.5 million for 2019 from $889.6 million the previous year, largely due to rising technology and compensation costs. Like the industry itself, FINRA has had to adapt to a changing digital landscape. The regulator employs approximately 3,550 people, down from 3,638 in 2015.

FINRA expects revenue of $846.9 million for this year, down from $850.1 million. The regulator also said user fees are expected to decline primarily due to lower registration fees and changes in transparency services’ trade volume.

To make up the difference, FINRA said it would draw on its reserves of $185.8 million. But there's an unknown variable in the mix: fines and penalties the regulator dishes out to member firms.

“For reference, our 2017 budget included a potential reserve reliance of $142.8 million, but we ultimately reported GAAP net income in our 2017 annual financial report of $41.6 million,” FINRA CEO Robert Cook and Chairman William Heyman wrote in a note accompanying the report.

The regulator has not raised member fees in six years. These costs range from $7,500 to $55,000 depending on firm size. However, FINRA cautions that if it did experience multiple years of shortfalls that resulted in it tapping reserves, then fee increases would become necessary.

FINRA first presented an annual budget summary last year in a bid to be more transparent as to how it manages its finances. It also laid out six guiding principles for its budget.

“As our member firms continue to adapt and innovate, so too must FINRA’s approach to new regulatory challenges,” Cook and Heyman write.

For reprint and licensing requests for this article, click here.
Regulatory actions and programs Regulatory guidance Robert W. Cook FINRA