Enforcement actions brought by the Financial Industry Regulatory Authority dropped to the lowest level in the authority’s history last year, AdvisorHub reports.
According to the report, this decline has sparked concern that FINRA is not being as aggressive as it has in the past in regulating major cases of fraud and misconduct in the financial industry.
AdvisorHub cites people familiar with the matter as saying some members of FINRA’s enforcement staff are trying to get the authority to take a more aggressive stance in dealing with financial crime. The sources also said that FINRA managers would not publish some press releases drafted by employees to promote cases. Press releases were published on 10 of 425 FINRA enforcement actions in 2023 compared with 63 in 2015.
The trend has led some to wonder whether FINRA’s current enforcement efforts are as effective as those implemented to toughen regulations following the 2008 financial crisis and the Bernie Madoff Ponzi scheme.
“Right now, there’s no big crisis going on,” said Brad Bennett, FINRA’s enforcement director from 2011 to 2017. “The tide is in, but as sure as the sun rises in the east, the tide will go out. And people will be wondering: Where the hell was FINRA?”
FINRA denies there has been any dropoff in its enforcement approach, asserting that it remains fully dedicated to protecting investors and safeguarding market integrity.
“There is an important reason why there are fewer enforcement actions: FINRA has reduced the number of bad actor firms and individuals over time,” said authority spokesperson Ray Pellecchia. “Any suggestion that we have let up on our regulatory focus is just dead wrong.”
Pellecchia explained that limiting the number of press releases enables FINRA to place a stronger emphasis on the cases it does want to publicize. He added that the total number of enforcement actions declines when the authority addresses multiple matters in one enforcement action, and that cases involving repeat offenders are given a higher priority.
As for the assertion that there has been a reduction in the amount of financial crime, Gary Carleton, a former senior counsel at FINRA, said, “To the contrary, with the growth of so many more financial platforms, the use of social media and direct messaging, there is far more opportunity for abuse that is harder to detect,” he said in an interview.
U.S. Senator Elizabeth Warren of Massachusetts said she planned to investigate the reported decline in enforcement actions by FINRA.
“FINRA’s job is to protect investors and hold big financial services firms like Goldman and Barclays publicly accountable when they don’t follow the rules – but they can’t do that if they take the cop off the brokerage beat,” Warren, a Massachusetts Democrat, said in an emailed statement to Bloomberg.
One reason cited for the drop in the number of enforcement actions dates back to the arrival of Robert Cook as FINRA CEO in 2016. He launched Finra360, described as a “comprehensive self-evaluation and organizational improvement initiative,” to help the authority modernize, streamline and engage more with brokers. As a result, FINRA policy was modified in order to reduce the quanity while improving the quality of its enforcement cases..
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