Fines issued by the Financial Industry Regulatory Authority jumped 60% to $91 million, from $57 million in 2020, although most of the increase came from a single case, according to a report by Eversheds Sutherland Partners Brian Rubin and Adam Pollet.
The increase represents the highest total in fines since 2016, when Finra ordered $174 million in fines, according to the report. But he noted that the dramatic rise in 2020 was mainly due to a one-time, record $57 million fine that Finra imposed on Robinhood Financial LLC in June. The company was also fined $12.6 million in restitution for alleged systemic surveillance failures spanning years and causing significant harm to millions of its customers, the report noted.
Without this large fine, Finra’s fines in 2021 would have been $34 million, down more than 40% from 2020, according to the report.
Despite the increase in fines, there was a slight decrease in the number of cases with heavy fines in 2021. There were eight “oversized” fines of $1 million or more totaling $71 million, according to the report . In 2020, there were 10 “oversized” fines, totaling just $39 million. “Similarly, in 2021, Finra imposed a fine of $5 million or more (what we call a ‘mega’ fine) – the record fine of $57 million. In 2020, two cases resulted in mega-fines (totaling $22 million),” the report said.
Restitutions also saw a big jump in 2021. Finra ordered around $49 million in restitution, with the total largely due to one case with a restitution of around $12.6 million, the report notes. That’s a 96% increase from $25 million in 2020. Except in this case, restitution still saw a significant increase of more than 45%, according to the report. The growth was partly due to restitution orders of $1 million or more, including 10, totaling nearly $42 million.
Total monetary penalties in fines, disgorgements and restitutions in 2021 were $144 million, a 53% increase from the $94 million in total penalties ordered by Finra in 2020 and the highest total penalties ordered since 2017, according to the report.
As in 2020, the number of cases reported by Finra remained broadly stable last year. There were 569 disciplinary actions in 2021, a decrease of 6% from the 602 disciplinary actions reported in 2020 and a decrease of 4% from the 591 disciplinary actions in 2019. and individuals) were 20%, compared to 23 % in 2020,” the report notes.
Here are Finra’s top enforcement issues for 2021, measured by the total number of fines issued:
• Anti-Money Laundering (AML) cases, which resulted in 16 cases in 2021, totaling $4.6, compared to 14 cases, totaling $16.2 million in 2020. This is the sixth year Consecutive AML has topped the Eversheds Sutherland Top List of Enforcement Problems and the eighth consecutive year that AML has appeared on the list.
• The Unit Investment Trust (UIT) cases resulted in the second highest number of fines for Finra in 2021, making the list for the first time. Finra reported five ITU cases in 2021, with $3.9 million in fines and $10.9 million in restitution. The number of cases decreased slightly from the six cases filed in 2020, while fines and restitution increased significantly to $325,000 and $1.3 million, respectively.
• Aptitude cases resulted in the third highest number of fines for Finra in 2021. Aptitude cases last appeared on the list in 2019. Finra reported 54 aptitude cases, with 3 $.9 million in fines in 2021. The number of cases increased by 29% from the 42 cases introduced in 2020, while fines increased by 109%, from $1.9 million. Finra also ordered $7.3 million in restitution in suitability cases, a decrease from the $9.9 million ordered in 2020.
• Business reporting cases resulted in the fourth highest number of fines for Finra in 2020. This is the second year in a row that business reporting cases have made the list. Finra reported nine business reporting cases, with $3.4 million in fines in 2021. The number of cases was down 74% from the 34 cases filed in 2020, and fines were down 51% from compared to $7 million reported in 2020.
• Municipal securities cases resulted in the fifth highest number of fines for Finra in 2021. Municipal securities have not been on the list since 2019. Finra reported seven municipal securities cases, with 3 million dollars in fines in 2021. The number of cases remained stable compared to 2020, while fines increased significantly from $355,000.