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Number of disciplinary actions brought by FINRA reported to be declining

On Behalf of | Feb 27, 2024 | FINRA Compliance

A report compiled by a Washington, D.C. attorney shows a significant decline in disciplinary actions brought by the Financial Industry Regulatory Authority in recent years, AdvisorHub reports.

Gary Carleton, a former enforcement lawyer for FINRA and the Securities and Exchange Commission, examined the number of acceptance, waiver and consent letters reported by FINRA from 2013 through 2022.  In his post titled “FINRA’s Disciplinary Hearings Disappearing Act”, he found that the settlement letters dropped from 987 in 2013 to 428 in 2022, a decline of nearly 70%.

Carleton also noted that FINRA’s formal complaints against firms and brokerages, which are brought if respondents do not settle cases or do not have the option to do so, dropped from 124 in 2014 to 20 in 2023.

He said that with the lower numbers of settlements and formal complaints, “you might think that FINRA has decided, appropriately, to focus on the most egregious cases involving customer abuse and trading that disrupts market integrity.”

But Carleton said his review of cases found that was not the case.  Instead, he said a significant number of cases represented what he called “low hanging fruit”, namely, Form U4 and U5 cases in which brokers failed to update their termination forms on a timely basis which may have indicated a judgment or lien against them.  Carleton told AdvisorHub the second largest segment of actions involve “people who do not respond timely to a request for information” and brokers who are about to leave the industry.

He expressed hope that with new and highly qualified leadership in 2024, FINRA would return its focus to cases involving market integrity and customer protection.

It was noted in the AdvisorHub report that the total amount of fines imposed by FINRA had not been drastically different, with $54.5 million in fines issued in 2022 compared to $60 million in 2013.

Also quoted was Brad Bennett, former head of enforcement for FINRA.  Asked about reasons for the decline, he said it appears that FINRA has been trying to remedy issues with firms prior to taking enforcement action by adjusting its examination and surveillance practices.

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