In 2010 the FINRA reported a significant increase in the number of cases despite a slight decrease in the total amount of fines, according to the FINRA Sanction Study, a recent report from legal and tax services firm Sutherland Asbill & Brennan LLP.
The FINRA Sanction Study – a review of the disciplinary actions brought by the Financial Industry Regulatory Authority (FINRA) against broker-dealers and associated persons revealed that FINRA’s disciplinary actions in 2010 grew from 1,158 to 1,310, an increase of more than 13%. This reverses the substantial slowdown in disciplinary actions filed between 2006 and 2008 (when there were 1,204, 1,177, and 1,073 disciplinary actions filed each year), and brings FINRA almost back to 2005 levels, when 1,412 disciplinary actions were filed. In 2010, FINRA fined firms and individuals approximately $45 million in 2010, falling just short of 2009’s $50 million in fines. Despite the increase in the number of matters, the total of the fines imposed by FINRA in 2010 is still significantly less than in 2005, 2006, and 2007 when the fines were $184 million, $111 million, and $77 million, respectively.
While Advertising and Credit Default Swap cases generated the largest amount of total FINRA fines in 2010, Electronic Communication violations were found in 34 FINRA disciplinary actions in 2010, resulting in approximately $4 million in fines. This includes more than $2.1 million in fines for failing to adequately maintain and preserve company e-mails in 23 cases.
Although electronic communications cases rank third in Sutherland’s analysis for 2010, the total fines remains largely unchanged from 2009. However, the fines imposed in each of these years are still substantially less than the amounts imposed for electronic communications violations in some recent years (for example, $30.6 million in 2005 and $15.8 million in 2008). This likely indicates that more firms are installing systems to effectively manage and supervise electronic communications.
“We are seeing more aggressive enforcement from FINRA. Substantively, FINRA is focusing on an increasingly broad range of issues,” said Mr. Rubin, who represents firms and individuals being investigated and prosecuted by FINRA, the Securities and Exchange Commission and states. “Procedurally, this aggressiveness has been illustrated by the types of information requested and the deadlines being imposed. Broker-dealers need to be aware of FINRA’s high priority issues, as well as learn how to navigate through investigations in the most efficient and effective way possible,” Rubin added.
While FINRA has yet to bring any cases involving social media, Sutherland Asbill & Brennan believes that cases involving this new type of electronic communication are likely to come in the next year or two. FINRA Regulatory Notice 10-06 requires member firms to supervise and archive content posted to social media for business purposes. The Food and Drug Administration (FDA), Federal Trade Commission (FTC), and the National Futures Association (NFA) are also developing rules associated with the use of social media. New regulatory requirements around social media add to the already burdensome task of adhering to current law for organizations – which requires that corporations archive, set policy, and make discoverable many forms of electronic information, including email, audio, and video.
Read More in SecurityWeek’s Risk Management & Compliance Sections
