By Richard Robbins
FINRA’s Growth Comes From Member Fines and Increased Regulation
Who wants to see their industry regulatory authority thrive?
Who likes to be fined?
Those two concepts equate to essentially the same thing in the US financial industry, where FINRA (the Financial Industry Regulatory Authority) monitors the behavior of member organizations, which consist of brokerage firms and securities exchange markets. In recent history, prosperity for FINRA is mostly attributable in large part to mistakes (or misfortune, depending upon what angle you take) on the the part of members firms.
An article published by InvestmentNews this week gave some insights into the growing trend toward increased regulation, or what many might say over-regulation. According to FINRA’s latest income statement, income grew from $1.7 million in 2013 to $129 million last year. If I had a company that grew at that rate, you might call me a genius. In this case, though, the income doesn’t come as much from creating demand for a product, but from finding compliance issues that exist among over 4,000 brokerage firms and more than half a million registered securities representatives. FINRA attributed a significant amount of its rise in revenue, which also consists of trading activity fees and membership fees for member branch offices, to increases in trading volumes from 2013 to 2014.
Because of the “success” of FINRA in 2014, the regulator was able to distribute $20 million in rebates to member firms. Also in 2014, several FINRA executives earned seven figures in compensation, including its CEO Richard Ketchum and others in C-level and VP positions.
Besides revenues from fines and membership/certification fees, FINRA also receives revenue from investments owned by the organization.
This news about FINRA’s success comes with mixed reactions from the investment brokerage community, many of whom contributed to the pot involuntarily. While it is absolutely necessary to have strict regulation in an industry that affects the financial well-being of millions of investors, many who receive FINRA fines aren’t in the business of ripping off investors, but have difficulty keeping up with all the fine print elements of the regulations, which tend to be expansive and sometimes difficult to understand and comply with. In fact, advice provided in 2012 by Todd Pack, CEO of Financial Advisers of America, for brokerages , for dealing with FINRA audits used the terminology “navigating the land mines” to describe the process.
Customers of eFileCabinet find that one of the best ways to efficiently stay at least within the perimeters of full FINRA compliance is to use a capable document management system that allows them to store, represent and interact with their investment records according to regulatory. The traditional paper records and filing cabinet approach to regulatory compliance is simply too inefficient to keep up with the ever-increasing regulations.
If you are in need of some help with your system of managing records so that you’re not at the forefront of contributing to FINRA’s income through fines, we’d be glad to show you how its done and provide the software you need to be much better prepared for an audit by FINRA, the SEC, or any of the other regulators who have jurisdiction over the financial sector.
Would you like some help making your financial institution FINRA compliant so you don’t get fined for managing client files incorrectly? Fill out the form below, and we’ll contact you to walk you through the process.