Top FINRA Enforcement Issues and Trends of 2019 Brian Rubin Adam - - PowerPoint PPT Presentation
Top FINRA Enforcement Issues and Trends of 2019 Brian Rubin Adam Pollet Donald McElligott Partner Counsel VP, Compliance Supervision Eversheds Sutherland Eversheds Sutherland Global Relay Speakers Brian Rubin Adam Pollet Donald
Adam Pollet Counsel Eversheds Sutherland Brian Rubin Partner Eversheds Sutherland Donald McElligott VP, Compliance Supervision Global Relay
Brian Rubin Partner Eversheds Sutherland Adam Pollet Counsel Eversheds Sutherland Donald McElligott VP, Compliance Supervision Global Relay
The Stats
in fines reported in 2019 in fines reported in 2018 decrease from 2018
Fines
2011 2012 2013 2014 2015 2016 2017 2018 2019 Fines Assessed $72M $69M $60M $133M $94M $174M $65M $61M $39.5M Change From Prior Year
122%
85%
Number of cases brought (Fewest number of cases since before 2008) cases brought in 2018 decrease from 2018
Cases
2011 2012 2013 2014 2015 2016 2017 2018 2019 Number of Cases 1,488 1,541 1,535 1,397 1,512 1,434 1,369 921 854 Change From Prior Year
8%
in restitution reported in 2019 in restitution reported in 2018 increase from 2018
Restitution
2011 2012 2013 2014 2015 2016 2017 2018 2019 Restitution $19M $34M $10M $32M $97M $28M $67M $26M $28M Change From Prior Year
220% 203%
139%
8%
in total sanctions reported in 2019 (Lowest total since 2013) decrease from 2018
Total Sanctions (fines + restitution + disgorgement)
2011 2012 2013 2014 2015 2016 2017 2018 2019 Total Sanctions $87M $112M $67M $168M $193M $207M $150M $124M $70M Change From Prior Year
151% 15% 7%
in total fines 13 supersized fines 2018 in total fines 15 supersized fines 2017 in total fines 34 supersized fines 2016 in total fines 18 supersized fines 2015 in total fines 9 supersized fines 2019
“Supersized” Fines of $1M+
$27.9m $47m $43m $137m $52.2m
in total fines 5 yuuuge fine 2018 in total fines 2 yuuuge fine 2017 in total fines 8 yuuuge fine 2016 in total fines 3 yuuuge fine 2015 in total fines 1 yuuuge fine 2019
“Yuuuge” Fines of $5M+
$15m $31.3m $18.5m $89m $23.6m
The Top Enforcement Issues
Issues list
allegedly failed to develop and implement a written AML program to reasonably monitor penny stocks for suspicious activity and failed to review wire transfers conducted in foreign currencies or involving high-risk entities or jurisdictions.
#1: Anti-money Laundering
since 2012
maintain a reasonable supervisory system governing the delivery of prospectuses for ETFs and ETPs.
#2: Exchange-traded Funds/Products
reported in 2019
unbalanced and misleading communications with the public regarding a biotechnology company the owner founded, among other things.
#3: Misleading Or Inaccurate Information
since 2013
address municipal short positions and did not accurately represent the tax status of thousands of interest payments to customers, incorrectly identifying them as tax-exempt when, in fact, they were taxable.
#4: Municipal Securities
supervise early UIT rollovers, causing its customers to incur sales charges that they would not have incurred had they held the UITs until their maturity
in restitution.
#5: Suitability
Key Issues
Top of the Top Enforcement Issues list for 4 consecutive years and top 5 for 6 consecutive years. Number of cases decreased in 2019, but single largest AML case ($5 million) was more than the largest AML case in 2018 (which was the largest single fine in 2018). FINRA will likely sanction firms more severely in the future for AML violations (failing to ensure AML programs are adequate and reasonably tailored to business operations).
Still AML
In January 2019, FINRA launched a new self- reporting initiative focused on 529 plan share classes. FINRA was concerned that some firms may not adequately supervise their representatives in considering the various share classes when making 529 plan recommendations to customers. FINRA has noted that approximately 100 firms self- reported through this initiative, although not all of them will be sanctioned, depending upon the facts of each case.
529 Plan Share Class Initiative
FINRA (in coordination with various exchanges) brought a string of 7 market access cases in 2019. While FINRA fined those firms approximately $850,000, exchanges fined them nearly $9 million. In 2018, there were 3 cases with approximately $340,000 in fines by FINRA and $2.8 million in fines
Market Access Cases
123 cases (26 cases against firms) $7.4 million in fines $70,000 in restitution Increases compared to same period in 2019 $1M – Firm allegedly disseminated inaccurate expense ratio information and historical performance information for numerous investment options in retirement plans and provided inaccurate third-party ratings for those investment options
COVID-19 issues and scams Cybersecurity and technology Insider trading Misrepresentations/omissions/suitability Product failures
Adam Pollet Counsel (202) 383-0812 adampollet@eversheds-sutherland.com Brian Rubin Partner (202) 383-0124 brianrubin@eversheds-sutherland.com Global Relay info@globalrelay.net