FINRA Criticized for Being Lenient on Financial Brokers
On May 29, 2014, one of five Commissioners of the Securities and Exchange Commission gave a speech to FINRA’s Division of Market Regulation. While the SEC is the final government regulator of the country’s securities industry, FINRA—or the Financial Industry Regulatory Authority—is a key player in U.S. markets. FINRA is not itself a government agency. It is, instead, a so-called “Self Regulatory Organization.” Financial brokers and brokerages are required to be members of FINRA—and FINRA then oversees their conduct.
Indeed, FINRA reports that it regulates over 4,000 securities firms and over 600,000 securities brokers. It also boasts that, in 2013, it was responsible for 1,535 disciplinary proceedings against members, imposed tens of millions of dollars in fines, and required almost $10 million to be paid as restitution to defrauded and injured investors. The organization provides investor education, makes and enforces rules for the securities industry, and oversees the vast majority of securities arbitration in the United States.
According to FINRA, their record demonstrates “aggressive vigilance.”
The SEC, however, begs to differ.
The SEC Calls FINRA’s Record “Financially Insignificant”
In the May 29 speech, Commission Kara Stein pointedly criticized FINRA’s record. She stated that the results of FINRA’s investigation and enforcement actions “are too often financially insignificant for the wrongdoers.”
She encouraged FINRA to treat repeat offenders more harshly. And she stated that FINRA’s rules and sanctions must be better designed to incentivize improved industry standards and disincentive bad behavior.
In the wake of this speech, the Wall Street Journal collected data on both the SEC and FINRA. According to the Journal’s reporting, FINRA has continued to outpace the SEC in numbers of brokers and brokerages held to account. In 2013, while FINRA held 1,535 disciplinary proceedings, the SEC only held 686. In 2012, those numbers were 1,541 to 734. In 2011, they were 1,488 to 735. And in 2010, FINRA brought 1,310 actions, while the SEC only brought 681.
This picture, however, is not complete. While FINRA did bring more actions, the results of those actions paled in comparison to those of the SEC. FINRA’s 1,535 proceedings from 2013 levied $74.5 million in total sanctions—while the SEC’s 686 resulted in $3.4 billion in sanctions. And this discrepancy holds true for the last few years as well. Since 2010, FINRA has never imposed more than $103 million in sanctions per year and the SEC has never imposed less than $2.8 billion.
FINRA has defended its record, noting that its focus is on being “the cop on the beat from Wall Street to Main Street.” In other words, they go after all types of bad actors—however little they may recover from them. The SEC, in contrast, tends to target more financially egregious violations of the law.
Still, FINRA has taken the SEC’s critiques to heart. The organization has announced a review of its sanctions to make sure they are impactful. FINRA will pay special attention to repeat offenders and bad acting large brokerage firms. Though, while this effort may help to discourage fraud and illegality among securities professionals, FINRA’s review may take over a year to actually implement.
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If you have been the victim of securities fraud, contact Gregory Tendrich, P.A. immediately. With his aggressive support you may be able to recover compensation to replace what you lost.