What Does FINRA Use Fine Money for Anyways? FINRA Releases 2020 Fine Money Allocation Report

By: T.J. Mitchell

On May 27, 2021, FINRA issued its report on how FINRA allocated monies it collected from fines in 2020. FINRA, as a not-for-profit self-regulatory organization (often called an “SRO”), is tasked with promoting investor protection and market integrity. One way it tries to accomplish this goal is through its enforcement arm: imposing fines on FINRA member firms in the event of their non-compliance with FINRA regulations as well as to discourage future misconduct.

FINRA members are likely happy to know that fine monies are not included in FINRA’s operating budget and are not considered in determining employee compensation. Instead, FINRA follows its Guiding Principles when it comes to determining how to use the monies it collects via fines on its members. According to the Guiding Principles, the use of fine monies must be approved by the FINRA Board or by its Finance, Operations, and Technology Committee. Fine monies can be used for four purposes:

  1. Promoting more effective and efficient regulatory oversight by FINRA (such as investing in new technologies);
  2. Educating investors, member firms and employees;
  3. Maintaining compliance with new legal, regulatory and audit requirements; or
  4. Replenishing reserves to preserve FINRA’s long-term ability to fund its regulatory efforts.

In 2020, FINRA issued $57 million in fines. In addition, the FINRA Board determined that there were $33.2 million in reserves and excess operating results which were to be used for eligible fine expenditures, resulting in a total of $90.2 million available to be spent.

FINRA ultimately allocated this $90.2 million as follows:

  • $31.8 million invested into initiatives to promote and enhance FINRA’s ability to analyze, surveil and exchange data with the U.S. Securities and Exchange Commission.
  • $18.4 million invested into tools and technologies to improve FINRA’s examination, investigation and enforcement teams.
  • $14.5 million invested into giving FINRA’s external-facing digital platform and other firm compliance filing systems a technical face-lift.
  • $9.1 million invested into enhancing its registration, testing and corporate system including a transformation of the Central Registration Depository (often referred to as the CRD) and FINRA’s Continuing Education program.
  • $8 million invested into the production of virtual conferences, educational programs and “bootcamps” to educate individuals and firms on developing topics within the financial services industry.
  • $4.9 million invested into training programs for FINRA examiners to ensure they are prepared for new regulatory challenges.
  • $3.5 million invested into educational programs and tools for investors, such as the production of FINRA’s new mutual fund analyzer.

Knowing where FINRA is investing its resources assists members (and investors) understand what FINRA is prioritizing for the future. For more information on the current priorities of securities regulators, read our recent article on the SEC’s 2021 Examination Priorities.

T.J. Mitchell is a lawyer with Jennings Haug Cunningham’s business law practice. He provides clients with litigation solutions in complex financial and business disputes, manages clients’ risk, allowing clients to focus on driving their business objectives. He can be contacted at [email protected].