The study found Finra disciplinary actions jumped to 1,310 cases versus 1,158 in 2009, marking the second consecutive year that sanctions have risen after a three-year slowdown between 2006 and 2008. Still, the number of disciplinary actions in 2010 trailed the pace from 2005, when 1,412 actions were filed.
Also last year, Finra fined broker-dealers and individual reps about $45 million, which trailed the $50 million in fines levied in 2009. And that amount significantly trailed the $184 million in fines collected in 2005. One reason for the lagging fine totals last year were a fewer number of supersized fines of $1 million or more, says Brian Rubin, a partner in Sutherland's Washington, D.C., office and a former deputy chief counsel at NASD, one of Finra's two predecessor agencies. He notes those types of fines entail egregious conduct causing customer or regulatory harm.
Rubin said one of the reasons 2005 was such a busy year was the numerous cases involving market timing and late trading, which he says were egregious cases that warranted hefty fines.
According to the study, advertising cases generated the largest amount of fines last year. That was followed by credit default swaps, which mainly dealt with improper communications about customers' proposed brokerage rate reductions in the wholesale CDS market. Third on the list were electronic communication cases, including 23 cases and more than $2.1 million in fines for firms not properly maintaining and preserving e-mails.
And more communications-related cases could be in the offing. Rubin says social media is one area where broker-dealers should tread carefully after both Finra and the SEC made it an area of focus, including Finra's recent announcement it would form a task force on the issue.
"We anticipate cases either this year or next in that area dealing with things like misleading statements, supervision and retention," Rubin says.
Pension Problems
Rising pension costs are shackling state governments and corporations with a heavy burden that some of them can't meet, which is fueling a potential pension funding crisis. According to Cogent Research, only 20% of pension plans are financially prepared to meet their financial obligations to plan participants, which means having at least 95% of their funding obligations covered.
"Relatively speaking, corporate pensions are in better shape," says John Meunier, principal at Cogent, a Boston-based consultancy. For example, none of the corporate pensions examined by Cogent reported a funding status below 60%, while 16% of public pensions were below 60%. Additionally, "only" 20% of corporate pensions were funded between 60% to 79% versus 38% among public pensions.
All told, that means more than half of public pensions are less than 80% funded, a level deemed as substantially underfunded. The choices faced by these pensions, says Cogent in its recent Institutional Investor Brandscape report, include going to taxpayers to make up the difference, restructuring participation rules and payments, or going broke.
Meunier says Cogent's data was collected from the Money Market Directories, a Standard & Poor's unit that tracks pension fund sponsors and other segments of the financial services industry. "These numbers point to the increased need for consultants, including financial advisors who advise institutions, to help institutions make better choices around their investment selections and their choice of asset managers," he says.