A new report examines the disciplinary actions taken by the Financial Industry Regulatory Authority during 2023, reports WealthManagement.
The law firm Eversheds Sutherland (US) LLP completed its annual study by reviewing FINRA’s monthly disciplinary reports, press releases and online database.
Overall, the firm found that both the number of disciplinary actions and orders of restitution declined for the third consecutive year, but fines increased significantly compared to last year, in large part because of one $24 million fine.
The top five enforcement issues, ranked in order of total fines levied, were as follows:
1: Spoofing—appearing on the list for the first time;
2: Trade reporting;
3: Anti-money laundering;
4: Regulation Best Interest (Reg BI);
5: Suitability.
The report notes that spoofing is “a type of fraudulent trading that involves the use of non–bona fide orders to create a false appearance of market activity on one side of the market to induce other market participants to execute against bona fide orders entered on the opposite side of the market in the same security or a correlated product.”
There were two spoofing cases last year including that of Bank of America, which was fined $24 million for engaging in 717 instances of spoofing a US Treasury security between October 2014 and February 2021.
It marked the fourth year in a row that trade reporting cases made the Eversheds Sutherland Top Enforcement Issues list. FINRA reported 14 trade reporting cases in 2023, resulting in a total of $20 million in fines.
FINRA reported 13 cases involving the Anti-Money Laundering/Bank Secrecy Act with fines totaling $8 million.
It was the first time that Reg BI-related cases were on the top five list with15 Reg BI cases in 2023, totaling $6 million in fines. FINRA brought its first such enforcement action in October 2022.
Eversheds Sutherland (US) Partners Brian L. Rubin and Adam C. Pollet, who co-authored the study, said they expect Reg BI will likely remain in the top five for years to come.
“Indeed, because FINRA is the primary regulator for broker/dealers, we expect that as FINRA expands its Reg BI examinations and investigations, we will see a corresponding decrease in the role played by the SEC,” Rubin said.
FINRA fines and penalties rose 63% to $89 million in 2023 from $54.5 million last year with the Bank of America fine accounting for much of the increase. But the number of disciplinary actions dropped by 9% from last year and by 13% from 2021.
“FINRA has previously emphasized the importance of putting wrongfully obtained money back in the hands of harmed investors, yet the decline in restitution would appear to cut against that goal,” said Pollet. “More recently, however, FINRA has suggested that as firms proactively remediate customer losses through a strong culture of compliance, the amount of restitution that FINRA needs to order would decrease. We’re going to keep a close eye on how this plays out in 2024.”
The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. When it comes to regulatory compliance and enforcement matters, our attorneys have dealt with investigations and enforcement actions stemming from allegations including violations of SEC, FINRA, and SRO rules and regulations. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.
