FINRA recently commented on its enforcement actions and fines over 2011. If anything, the statistics show that broker-dealers are on notice of two things: (1) FINRA is aggressively pursuing enforcement actions; and (2) FINRA is seeking larger fines in enforcement proceedings. As such, now is as good a time as ever for broker-dealers to revisit their compliance programs to ensure that they are running a tight ship in an effort to avoid an unfriendly call from big brother.
FINRA’ issued $68 million in fines in 2011, up from $45 million in 2010. The greatest component of these fines was found in a surge from penalties for improper advertising, comprising $21.1 of the total fines issued. The report FINRA issued also reflects a step-up in enforcement proceedings. There were 1,488 disciplinary actions in 2011, compared to 1,310 for 2010. In addition, FINRA increased the number of barred brokers from 288 in 2010 to 329 for 2011.
The easy answer for this step-up in enforcement actions and fines if that FINRA is continuing to address the regulatory failings arising out of the Maddoff and Stanford ponzi schemes. In essence, this increased activity is a reflection of prior criticisms that FINRA was a paper tiger. So what does this mean for broker-dealers.
For one, FINRA’s report shows that particular attention should be devoted to firm advertising. Firms should take a critical look at what they are internally telling their registered representatives versus what is being told to the public. Moreover, with the increased use in social media, firms need to ensure that any use of social media conforms with the firms’ advertising and document retention policies. Finally, with the adoption of Rule 2111, firms should also focus more on suitability, because FINRA will certainly look to determine if firms are complying with the new rule.
FINRA’s report clearly shows that firms must be ever vigilant when it comes to compliance. If not, you too may be the subject of an enforcement proceeding and fines.