In a recent blog, we provided key takeaways from FINRA’s 2023 Examination and Risk Monitoring Program Report. This blog will take a closer look at FINRA’s top enforcement issues in 2022.
Fines Trending Down
According to Eversheds Sutherland’s annual report of FINRA’s disciplinary actions, the overall total of fines, restitution, and disciplinary actions decreased considerably in 2022. The securities law firm found that fines assessed by FINRA decreased from $103 million in 2021 to $45 million in 2022 — a 56% decrease. It should be noted that in 2021, a $57 million “mega fine” was levied against Robinhood Financial. Excluding that significant penalty, the total fines in 2021 would have been $46 million, resulting in only a 2% decrease from 2021 to 2022.
The amount of restitution ordered by the regulatory authority totaled $21 million last year, a 55% decrease from $47 million in 2021. This decline resulted from a drop in the number of “supersized” restitution orders — those totaling $1 million or more. It bears mentioning that FINRA ordered Robinhood Financial to pay $12.6 million in restitution plus interest in 2022.
As for disciplinary actions, FINRA reported 463 cases in 2022, a 13% decrease from the 534 recorded in 2021 and a 17% decrease from the 560 recorded in 2020.
Top Enforcement Issues
The Eversheds report listed the top five enforcement issues for 2022 (as measured by total fines assessed):
Books and Records. FINRA reported 50 books and records cases in 2022, resulting in more than $14.8 million in fines — the most fines assessed by FINRA in 2022. These cases last appeared on the Eversheds Sutherland Top Enforcement Issues list in 2020.
Research/Analyst. There were three Research/Analyst cases in 2022, with fines totaling $9.3 million. These cases resulted in the second most fines for FINRA in 2022 — making the Top Enforcement Issues list for the first time since 2017.
Consumer Protection Rule. FINRA reported a case involving, among other things, the customer protection rule, resulting in a $9 million fine. These issues resulted in the third most fines for FINRA in 2022, although that ranking is based on one case.
Trade Reporting. FINRA reported 14 trade reporting cases in 2022, resulting in $7.9 million in fines. These cases resulted in the fourth most fines for FINRA in 2022. This marks the third consecutive year trade reporting cases have been on the Top Enforcement Issues list.
Best Execution. FINRA reported two best execution cases totaling $4 million in fines. These cases resulted in the fifth most fines for FINRA in 2022, reaching the Top Enforcement Issues list for the first time since 2014.
2023 Outlook
The Eversheds report spotlighted possible trends for 2023. FINRA is likely to bring more cases involving Regulation BI — despite the fact that the regulator filed only one case in 2022. Also, the report predicts that FINRA will likely ramp up the number of enforcement actions dealing with off-channel communications. These involve instances where reps have communicated about securities business matters on their personal devices, using text messages, applications, and personal email accounts. In 2022, FINRA conducted 14 cases in this area, resulting in $2.1 million in fines.
