Faced with dwindling operating revenues, Finra has frozen the salaries of its top executives.
Finra this year has “reduced year-over-year compensation increases by freezing officer salaries, freezing promotions of existing officers … and reducing annual merit increases for non-officers,” said Finra chief executive Robert Cook in Finra’s 2016 annual report, released last Friday.
Operating revenues at Finra declined 6 percent in 2016, Cook said, driven by lower revenues from surveillance services provided to stock exchanges, lower corporate financing fees due to fewer IPOs and secondary offerings, and a decline in fees from Finra’s continuing-education program following a transition to online delivery.
This year, Finra’s revenues will slip about 1 percent, and operating cash flows are expected to break even.
Finra used about $50 million in income from its $1.8 billion investment portfolio to fund operations last year, Cook said.
Cook, who took over as Finra chief executive last August, makes the same annual $1 million base salary as did his predecessor, Richard Ketchum. Finra execs also typically get an incentive award slightly more than their salary, but last year those incentives were lower across the board compared with 2015.
Meanwhile, revenue from fines is on a growth trajectory. Fines were up 85 percent last year to a record $173.8 million, from $93.8 million in 2015. The increase “more than offset the decrease in operating revenues for the year,” the report said.
Finra’s fine revenue tends to be lumpy, but has grown significantly over the years. From 2006 through 2013, annual total fines averaged about $55 million a year, but then jumped to a then-record $132.6 million in 2014, driven by a $43.5 million fine against 10 firms for allowing analysts to solicit investment banking business.
Brokerage firms have been concerned that Finra is seeking larger penalties to fund operations. For example, the Securities Industry and Financial Markets Association recently called on Finra to better explain the penalties it seeks, disclose in detail how it allocates revenues, and called for a “board-approved advisory committee to benchmark and review the appropriateness of fines.”