How to avoid FINRA enforcement fines in 2020

By Global Relay on July 6, 2020
Global relay



When FINRA ordered Merrill Lynch to pay $7.2 million in restitution and interest to clients in early June, to settle allegations that Merrill had overcharged them on mutual fund sales, there was a notable component missing from the sanctions—a fine.

According to FINRA, Merrill Lynch’s “extraordinary cooperation” in the investigation—which included hiring a consultancy firm to identify those clients who were potentially impacted, promptly paying restitution, and promptly fixing supervisory deficiencies—meant the restitution payments alone were an appropriate monetary sanction.

That contrasts sharply to a similar episode in 2014 where Merrill Lynch was ordered to pay an $8 million fine and $24.4 million in restitution to clients for… overcharging them on mutual funds.

So is this latest case a sign of a more lenient approach from the regulator?

According to a study by Brian Rubin and Adam Pollet of global law firm Eversheds Sutherland, FINRA fines have fallen for three years in a row.

While that means firms might have some spare change left in their annual enforcement fine budgets, for smaller companies it’s often not the fines that are the problem, but the subsequent damage to their reputation.

“If you’re a big company you are better equipped to absorb the hit that comes with the reputation loss. But for smaller firms, if customers see their own small financial adviser or local broker is getting nailed with a fine and getting called out by name, they will probably pull their money out and go elsewhere, and that’s what is really going to hurt them,” says Donald McElligott, VP of compliance supervision at Global Relay.

And even though fines are falling, firms are still making the headlines for alleged violations. 

In May, for instance, Stifel Nicolaus agreed to pay a total of $3.6 million in fines and restitution for allegedly imposing unfair charges on investors for early rollovers of unit investment trusts that they wouldn’t have had to pay if they had held the UITs until maturity. That ruling came just five months after Oppenheimer was hit with a $4.7 million sanction in fines and restitution for a similar alleged violation. 

As Rubin and Pollet highlight on our latest webinar Top FINRA Enforcement Issues and Trends of 2019, when you sift through the data, you can start to identify patterns in the types of cases the regulator is most interested in pursuing—and where your firm could be most at risk from potential sanctions.

With market volatility increasing amid the coronavirus pandemic, firms need to stay on their toes and ensure their supervisory programs are robust enough to detect anything that could get them in trouble with regulators later. 

So what should your firm be on the lookout for? Watch the webinar to learn:

  • All the latest trends in FINRA enforcement actions—and what could drive investigations in the post COVID-19 period.
  • The biggest enforcement areas of 2019—and top tips for what firms should be doing to ensure your firm stays compliant with the rules.
  • The key regulatory issues that could lead to the largest ‘supersized’
  • An update on FINRA’s enforcement actions so far this year—and how that compares to the same period in 2019.
  • The themes and trends that are likely to shape the enforcement landscape in 2020—from COVID-19 issues and scams, through to insider trading and product suitability.
  • How the COVID-19 lockdown is impacting FINRA exams and investigations—and how new regulations such as Reg BI (Regulation Best Interest) might impact enforcement trends in the coming years.

To make sure your firm is up to date with all the latest FINRA enforcement trends, watch the webinar here.

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