Industry participants have always had concerns about the financial incentives Finra has in bringing enforcement cases and seeking fines.

Now Finra is promising to be more transparent in what it does with the fine money.

The regulator on Thursday unveiled a new report outlining Finra’s budget for 2018 and establishing what Finra calls its “Financial Guiding Principles.”

A big part of those principles is to provide better disclosure about how Finra uses the fines it collects from firms and registered reps.

The principles “reflect enhanced governance procedures, restrictions on use, and transparency requirements related to fine monies,” the budget report says.

These are among the steps Finra promises:

• Fine monies will be accounted for separately and not be considered in determining employee compensation and benefits.
• Use of fine revenue must be approved separately by the Finra board or its finance committee.
• Fine monies will be targeted to specific enumerated purposes.
• Fine revenue not spent in a given year will be tracked separately for use in future years.
• Use of fine monies will be itemized and disclosed on an annual basis starting with fines collected this year.

As it has in the past, Finra promised to spend fine revenue only on capital expenditures and regulatory projects. The report said the Finra board last month identified several technology and surveillance projects for which fine monies may be used. Among those projects is a plan to upgrade the BrokerCheck database into an open-source architecture and cloud-based infrastructure.

The report said that fine revenue will also be used to educate investors, promote compliance by member firms, provide training for Finra employees and replenish its reserves.

(Finra’s reserve fund, a $1.8 billion portfolio as of the end of 2016, was derived from the sale of the NASDAQ stock market in 2006, and is used to fund part of Finra’s operating expenses.)

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