FINRA reported a net loss of $68.7 Million for fiscal 2018, as compared to $41.6 Million in net income for fiscal 2017, a swing of more than $110 Million in one year. Most of the change arose from losses in FINRA’s investment portfolio. Total fines imposed were down slightly – $61 Million vs $64.9 Million – although both 2017 and 2018 reflect much lower fines than the prior several years. Other regulatory revenues were up slightly.
We don’t relish the idea of a regulator that has to fill a large financial deficit, especially since it could use fines to fill some of this hole. We expect the lower fine numbers during the last 2 years to be more of an aberration.
FINRA imposed nearly double the fines on the industry in 2016, assessing $173.8 Million in fines as compared to $93.8 Million in 2015, according to its annual report. The increase in fines helped FINRA report over $57 Million in net income versus a $39 Million loss last year, even though operating income was lower in 2016. FINRA also ordered another $27.9 Million in restitution. FINRA uses fines collected for “capital expenditures and regulatory projects.”
OUR TAKE: Most of the financial regulators use their enforcement powers to collect funds to support their activities. Rather than encourage this financial incentive to bring cases, policy-makers should consider other alternatives such as third party compliance reviews or user fees.