FINRA Sustained $84.1M Net Loss in 2011

According to its yearly financial report, in 2011 the Financial Industry Regulatory Authority sustained an $84 million net loss last year primarily because of “non-recurring costs” involving new data centers in Maryland and New York and a rise in integration expenses related to the enhancement of cross market surveillance capabilities. A poor economy also reportedly played a role in the SRO’s decrease in revenues. The report came out on June 29.

FINRA Chairman and Chief Executive Officer Richard Ketchum attributed the decrease of regulatory fees of close to $50 million-a 10% drop since the financial crisis hit in 2008-to a drop in transaction volumes and industry revenues, as well as lower investment returns because of overall market returns and a more conservative investment allocation policy. (FINRA also noted net losses of $696.3 million in 2008, $48.6 million in 2009, and $54.6 million in 2010. )

Ketchum said that due to its “static funding levels,” FINRA is closely examining the organization’s spending habits, which it plans to lower by approximately $35 million this year. He expects that this will creative cumulative savings of close to $60 million by the end of next year while keeping the SRO’s regulatory mission intact.

FINRA is also looking at how it can contemporize its fee structure and find new revenue opportunities. It wants to make sure it is properly capitalized so it can satisfy its regulatory duties without becoming a burden to the industry. Recent rule proposals made by the SRO, including one to increase certain fees related to advertising material reviews and filing documents, were issued by the SEC last month. They were made effective right away.

“Four years ago, The National Association of Securities Dealers, Inc. (NASD) took over the regulatory functions of The New York Stock Exchange Inc. (NYSE), said Shepherd Smith Edwards and Kantas found and FINRA arbitration attorney William Shepherd. “The NYSE paid the NASD handsomely to take over this function. To convince NASD members to accept the future costs of these new responsibilities, each of the 5000+ NASD member firms was paid $35,000 up-front to vote “yes” – a total of over $175 million.”

Shepherd continued, “As lagniappe, the annual dues of members also were cut by $1,200 for 5 years, another $30+ million. NASD then changed its name to the Financial Industry Regulatory Authority (FINRA) – a misnomer because it remains an association, is not an authority, and does not regulate a large portion of the financial industry. FINRA then paid a huge multi-million dollar severance to its departing Chairman Mary Shapiro, who now heads the SEC. As we see, the tradition of fat paychecks to top management continues. As part of this spending spree, FINRA then also upgraded its offices and went on a massive media campaign for reasons that baffle many. It appears it’s time for FINRA to sober-up its spending ways. Instead, greater attention needs to be given to its actual regulatory functions. To fund this, an assessment of its members to recover the over $200 million in giveaways to them over the past few years seems in order.”

Our FINRA arbitration lawyers represent clients with securities claims against brokers, financial advisers, and broker-dealers. Your first case evaluation with Shepherd Smith Edwards and Kantas, LTD, LLP is free.

Read FINRA’s 2011 Annual Financial Report

More Blog Posts:

Investment Advisers and Brokers Should Be Able To Explain in One Page Why an Investment Would Benefit a Retail Client, Says FINRA CEO Richard Ketchum, Stockbroker Fraud Blog, June 14, 2012

Advanced Equities Ordered by FINRA Arbitration Panel to Pay $4.5M to Ex-Broker, Stockbroker Fraud Blog, June 12, 2012

FINRA Initiatives Addressing Market Volatility Approved by the SEC, Stockbroker Fraud Blog, June 5, 2012