08-15-14

FINRA Fines High in First Half 2014

FINRA recently made available disciplinary data for the first half of 2014, and the numbers are up sharply from 2013. FINRA has handed out $42 million in fines so far this year, compared with only $23 million in the first half of 2013. Fines that year eventually reached a total of $57 million, while 2014 will likely top out in excess of $80 million. That will make 2014 far more like 2012, when fines hit $78 million.

2014 (projected) and 2012 are still far below recent peaks hit in 2005 and 2006, when fines reached $184 million and $111 million respectively. After reaching that high water mark, fines began a reversal which ended in the post-crisis low of $45 million hit in 2010. The chart below shows fines for the past decade as well as the number of disciplinary actions reported (please note that 2014 is estimated from mid-year data). 

{image_1}

As illustrated in the chart above, 2014 fines have been assessed within a smaller number of disciplinary actions. This means that the number of large fines has increased dramatically this year. In fact, the first six months of 2013 saw only two fines in excess of $1 million, while there have been five such fines in the first half of 2014. The magnitude of these fines is also larger; the two fines from first-half 2013 totaled only $2.3 million, while the five fines for first-half 2014 total over $20 million. The largest first-half fine ($8 million in April) was assessed against Brown Brothers Harriman for AML violations as a result of the firm's failure to adequately monitor and investigate potentially suspicious penny stock activity. These large fines have been accruing steadily throughout the first six months: in January FINRA fined TD Ameritrade $1.8 million related to options position reporting, in February Deutsche Bank was hit for $6.5 million related to operational deficiencies in its enhanced lending program, and Barclays was fined $3.75 million for record retention failures. In May Citigroup Global Markets was fined $1.1 million for short selling in advance of IPOs. There are several fines that have been right on the cusp of exceeding $1 million: in February COR Clearing was hit for $1 million related to extensive regulatory failures, in March Stifel, Nicolaus was fined $1 million for unsuitable sales of leveraged and inverse ETFs, and in May Triad Advisors and Securities America were fined $1.2 million (jointly - $650k and $625k each) for reporting system failures that resulted in client statements with inaccurate values.

The presence of such large fines in the first half of 2014 adds an interesting source of distortion to the trend. Which way are fines moving? Removing the impact of these large fines would put 2014 more in line with 2013 rather than 2012. It will be interesting to see which pattern emerges by year’s end.  

Alert

Get Bates Group News and Alerts in your Inbox

Sign Up Now

Contact Bates Group

Bates Group is with you every step of the way. Contact us today for more information on how our End-to-End Solutions can help your firm.

Contact Bates Group