FINRA Regulatory Actions: Why Have They Dramatically Decreased?

According to a recent report, the number of regulatory actions issued by the Financial Industry Regulatory Authority (FINRA) has dropped by two-thirds since 2016. This revelation has caused securities industry watchdogs and FINRA critics to wonder: Is the regulator fulfilling its purpose to protect investors’ best interests?

Enforcement actions are an essential deterrent for brokerage firms to ensure their representatives comply with securities rules and regulations. Without them, brokerage firms may be emboldened to put their own financial interests ahead of their customers’.  

What Does FINRA Do?

Since 2007, FINRA has served as a regulator for brokerage firms and their registered representatives. Regulation involves issuing civil penalties and expelling brokerage firms. FINRA also bars brokers for violations of securities regulations that are designed to protect investors.

The Decline in Enforcement Actions

FINRA statistics reveal that FINRA has seen a decrease in disciplinary actions as well as restitution payments for investors.

• In 2017, FINRA received 3,002 investor complaints and issued 1,369 disciplinary actions.
• In 2023, the number of investor complaints increased significantly, totaling 11,003. And yet, the number of disciplinary actions dropped to 610.
• Disciplinary actions are not the only FINRA metric that has seen a significant decrease. In 2017, FINRA ordered firms to pay $66.8 million in restitution payments to investors. In 2024, that number dropped to just $7.5 million.

Via FINRA

FINRA Press Releases  

Bloomberg reports that FINRA has not publicized its enforcement actions as frequently as in recent years.

Press releases make it easier for investors to find information about these enforcement actions. These actions might prompt investors to review their accounts more closely and could give them some idea of what to look for. Press releases can also serve as a deterrent for brokerage firms who do not want to damage their reputations.

FINRA’s Response

FINRA claims that the drop in enforcement actions is thanks to the work they have already done removing fraudulent brokers and brokerage firms from the industry. But that does not explain why they have not publicized their more recent enforcement actions and fines.

Examples of Recent FINRA Regulatory Actions  

FINRA regularly issues fines to brokerage firms that allegedly mislead their customers or fail to protect their investors from potentially fraudulent investments. Here are a few recent examples:

• In December 2023, FINRA announced that it had fined four firms – M1 Finance, Open to the Public Investing, SoFi Securities, and SogoTrade — a combined total of $2.6 million following allegations that the firms violated rules related to fully paid securities lending. The firms had allegedly represented to investors that they would receive compensation for lending securities in the form of a “loan fee.” The investors allegedly received no such compensation. FINRA ordered the firms to pay the investors $1 million to investors on top of the regulatory fine.
• In November 2023, a firm consented to FINRA’s findings that it had failed to disclose on its Form CRS that a number of its financial professionals had legal or disciplinary histories. Regulation Best Interest requires that firms provide customers with this information.
• Also in November 2023, FINRA fined a broker $175,000 following allegations that the firm recommended sales totaling almost $11 million of different private placements to U.S. customers without conducting reasonable due diligence on the issuers and the offerings. The firm allegedly sought minimal information about these risky investments and allegedly “relied mostly on the issuer with little to no independent verification.”

With enough securities law violations on their records, FINRA may expel firms from the industry.

What Should I Do If I Suspect My Brokerage Firm or Broker of Misconduct?

Our securities attorneys work with investors who have suffered unfair losses as a result of broker misconduct. These cases are typically settled in FINRA arbitration – most brokerage firms require investors to sign an investment contract that features a pre-dispute arbitration clause that prevents firm customers from suing in civil court. Kurta Law investment fraud attorneys are experts in FINRA arbitration and will evaluate your case for free.

There is a limited timeframe for filing a complaint, so do not hesitate to reach out. Call (877) 600-0098 or email info@kurtalawfirm.com.