The Financial Industry Regulatory Authority has filed a proposal with the Securities and Exchange Commission for a series of member fee increases beginning in 2025, according to AdvisorHub.
FINRA estimates that total fees will increase at a compound annual growth rate of 5.3% and will be phased in gradually over a five-year period beginning on January 1, 2025, with full implementation of all proposed fee changes by 2029.
The increases will eventually boost FINRA’s revenue from fees to $450 million a year. The authority said the fee hike is needed partly because its expenses have gone up significantly due to rising technology costs related to capital investments seeking long-term efficiency gains for both FINRA and the industry. Furthermore, according to FINRA, there have also been rising cloud hosting costs, ongoing disaster recovery and cybersecurity requirements, elevated wage inflation and added staffing due to the authority’s regulatory responsibilities. Substantial investments have also been needed to enforce SEC mandates including Regulation Best Interest.
“FINRA’s financial projections indicate that in coming years necessary expenditures will outpace revenues, despite our continuous efforts to prudently manage our expenses and deploy our financial reserves,” FINRA Board Chair Eric Noll, Finance Committee Chair Scott A. Curtis and Chief Executive Robert Cook wrote on the authority’s website.
FINRA noted that some of the added costs to members, such as trading activity fees, are passed along to customers. The last fee hikes, implemented in 2022, were aimed at raising $225 million to fund operations through this year.
Despite the revenue, FINRA reported a net operating loss of $119 million in 2023, twice as much as the previous year. More annual losses were projected for 2024 and $100 million will have to be drawn down from its reserves. FINRA said that without raising fees, its reserve balance will fall below its Board-approved target level of one-year of operating costs by 2027
In its filing, FINRA pointed out that as a not-for-profit SRO, it receives no taxpayer funding and instead relies on a mix of fees that are intended to cover the overall costs of its operations.
The authority said it has been attempting to hold down its expenses by closing five offices, implementing staff buyouts and hiring a consultant to assess efficiency across its operations.
The increases will apply to a range of fees including those for membership, qualification exams, arbitration and other services. Some fees, such as a routine charge per branch office, will be increasing for the first time since 2013.
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