Despite the pandemic, the Financial Industry Regulatory Authority ratcheted up the disciplinary and enforcement fines it hit firms and advisors with to $57 million up from $40 million in 2019—a 43% year-over-year increase.
The surge in enforcement reverses the downward trend in the previous few years even, with Finra continuing to focus much of its efforts on protecting investors by hammering variable annuitiy, mutual fund and 529 plan abuses and overcharges, Eversheds Sutherland Partners Brian Rubin and Adam Pollet said in an updated analysis of enforcement action, which they conduct annually.
While much of the industry’s workforce transitioned to working from home, including FINRA’s enforcement staff, that did not slow down its enforcement program.
“Although the number of cases remained generally flat, there were larger amounts of fines and restitution in 2020 than in 2019. The continuation of remote work in 2021 should not provide any comfort to firms hoping that a work-from-home environment would cool off enforcement,” Pollet said.
With the rise in fines, the number of cases with very large fines also increased in 2020. FINRA assessed ten fines of $1 million or more, totaling $38.6 million, up from $28 million in 2019. Similarly, in 2020, FINRA assessed two fines of $5 million or more totaling $21.5 million. Coincidentally, the largest single fine in 2020 ($15 million) matched the largest single fine from 2019.
Restitution orders also increased. FINRA ordered restitution of approximately $36 million in 2020, up 29% from the $28 million in restitution ordered in 2019 and up 38% from the $26 million ordered in 2018.
As a result of these figures, the total monetary sanctions ordered by FINRA (fines, restitution and disgorgement) in 2020 were $94 million, representing a 34% increase from the $70 million in total sanctions ordered in 2019, the firm reported.
FINRA reported 595 disciplinary actions in 2020, a 1% increase from the 591 disciplinary actions in 2019, but the percentage of cases against just firms (as opposed to cases against individuals or jointly against both firms and individuals) jumped to 23%, up from 18% during 2019.
The number of individuals barred or suspended and firms expelled, however, decreased in 2020 compared with 2019. Finra barred 158 individuals in 2020, a 55% decrease from the 348 reported in 2019. And the number of individuals suspended decreased 35% to 271 in 2020 from 415 in 2019. The number of firms expelled by Finra decreased to two in 2020 compared with six in 2019.”
“Last year, the amount of fines and restitution increased materially from the previous year, appearing to indicate that the pandemic did not slow down FINRA’s enforcement program,” Rubin said.
The SRO continued its focus on Retail Investors. Cases relating to retail-type products, including variable annuities, mutual funds, 529 plans, suitability and providing misleading information to the public totaled 60 cases, $8.5 million in fines and $25.9 million in restitution.