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FINRA fines rise 60% in 2021 while case numbers drop slightly

Fines collected by the Financial Industry Regulatory Authority, Wall Street’s self-regulatory group, jumped 60% in 2021 over the previous year, despite the fact that the number of cases dropped slightly compared to 2020, by partners. According to a new analysis conducted at the law firm Evershed Sutherland.

Reported fines rose from $57 million to $91 million between 2020 and 2021, but were leveled against trading app Robinhood in June last year for allegedly misleading and allowing customers to join Faced with a hefty fine of $57 million. Improper options trading.

Without the Robinhood penalty, FINRA’s 2021 fines would be only $34 million, a 40% drop compared to 2020, according to Evershed Sutherland US Partners Brian Rubin and Adam Polett, who conducted the analysis.

“Last year, the amount of fines and reinstatement increased significantly compared to last year, indicating that FINRA’s enforcement program is as strong as ever,” Rubin said. “Looking beyond the record-setting case, FINRA will continue its nearly decade-long focus on anti-money laundering in 2021, while also pursuing more ‘nuts and bolts’ issues such as suitability and trade reporting.”

To determine the total amount of fines and cases, Rubin and Polett checked FINRA’s monthly disciplinary report for 2021 as well as its Disciplinary Action online database and press releases for more information on penalties and disciplinary orders. Although the total amount of fines has increased, the number of cases with “very large fines” has decreased; In 2020, FINRA imposed 10 “supersized” penalties of $1 million or more, compared to eight in 2021 (although the amount of the penalty was higher last year due to the record-breaking Robinhood fine).

The total restoration amount was also increased in 2021, with FINRA ordering approximately $49 million in restorations last year, a 96% increase from the $25 million in restorations from the prior year. However the 2021 total was given a substantial boost by a $12.6 million reinstatement order (also against Robinhood); Even without that fine restoration increased by 45% from 2020, according to Rubin and Polette.

Overall, the total number of FINRA sanctions (including fines, restitution and incarceration) was $144 million, a 53% jump from 2020 and the highest number since 2017. But the number of cases remained relatively stable year-over-year, with a 6% reduction in the number of disciplinary actions taken, from 602 in 2020 to 569 the following year (down from 2019’s 591 total disciplinary actions), according to the analysis. ).

The top enforcement issue was anti-money laundering, as it was for six consecutive years in previous analyzes of Evershed Sutherland’s FINRA records. In all, the regulatory authority brought in 16 cases last year that imposed fines of $4.6 million (in 2020, the case count was lower, but significantly higher, with a total of 14 cases and $16.2 million in fines.

Additionally, the firm’s analysis found that FINRA also focused on cases involving Unit Investment Trusts (UITs), with five cases and more than $13 million in fines and restitution.

In contrast, FINRA pursued a total of 54 cases involving suitability lapses, but these cases had fewer total fines and reinstatements than UIT-related cases (other FINRA focuses include business reporting and municipal securities).

In the coming years, Rubin and Polett warned firms to be prepared for increased actions and penalties related to Securities and Exchange Commission (SEC) regulation Best Interest and Form CRS. While FINRA did not bring any matters related to SEC regulations in 2021, it has included both mandates in its examination and risk monitoring reports for the past two years, showing that “regulators are wearing their gloves,” according to the report. .

Therefore, companies may wish to carefully review FINRA’s findings, as well as those cited by the North American Securities Administrators Association (NASA), or they may find themselves on the receiving end of FINRA enforcement action. “

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