In the first six months of 2018, FINRA levied $25.9 million in fines, up from $23.5 million in the first half of last year, according to a new mid-year analysis.
Restitution orders over the same period fell to $4.9 million compared to $38.1 million last year, the analysis by the law firm Eversheds Sutherland found.
The top enforcement issues for FINRA, a regulatory body funded by the securities industry, in terms of total fines were:
- Anti-money laundering: $9.4 million (11 cases)
- Trade reporting: $8.4 million (37 cases)
- Suitability: $5.6 million (54 cases)
- Variable annuities: $4.6 million (14 cases)
- Books and records: $3.5 million (33 cases)
“Despite a small increase in fines and a decrease in restitution, we expect those figures will more than double by year end,” said Eversheds partner Brian L. Rubin, in a news release.
FINRA’s emphasis on certain areas shows that firms should still concentrate on nuts-and-bolts issues like AML, trade reporting, suitability, and supervisory policies and procedures, he added.
Because cases may involve more than one alleged violation, a case may be included in more than one category, resulting in an overlap in the amount of fines.
Fifth Third Fined In VA Exchanges
Of the $4.6 million in fines involving variable annuities, $4 million was levied against Fifth Third Securities.
The fine was so steep because of the broker-dealer’s recidivism, “the breadth and extended duration of the violations, and the firm’s failure to comply with a prior regulatory action,” the FINA complaint alleges.
From 2013 to 2015, Fifth Third, through some of its 1,300 registered representatives, made “material misstatements and omissions” about the costs and benefits of VA exchanges, FINRA said.
Investigators found omissions in 77 percent of a sample set of 250 VA exchanges from the 1,431 VA exchanges executed, FINRA said.
Supervision of registered reps was also lacking, investigators said.
VA exchanges, made to customers with an average age of 60, generated $8.29 million in gross commissions for the firm over the three-year period, FINRA said.
Fifth Third agreed to FINRA’s consent order “without admitting or denying the findings,” FINRA said.
Restitution is a way for firms to reimburse or compensate harmed investors and customers.
Nearly half of the restitution reported in the first six months came from Fifth Third, which generated about $4.5 million in revenue from VA sales last year. The company generated about $220 million in revenue last year.
The drop in overall restitution amounts could be due to the types of cases FINRA is bringing against companies, or to the fact that firms have already taken steps to make customers whole again without further action from FINRA.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]
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