The Financial Industry Regulatory Authority (FINRA) released its 2020 annual report late last week showing a number of intriguing data points. One of these points involves the total amount of fines issued in violation of FINRA rules and regulations.
What is FINRA?
FINRA is a self-regulatory body that oversees brokerage firms, investment brokers, financial advisors, and other similar professionals in the banking and financial services industry. Since most of these professionals are required to register with FINRA, the entity has the authority to impose fines on those that violate its rules, regulations, and guidelines. Some common violations include breach of fiduciary duty, conflicts of interest, misuse of client funds, and others.
According to the report, FINRA reported over $57 million in fines in 2020, representing a 44% increase compared to 2019. FINRA reported $39.5 million in fines in 2019. This helped FINRA achieve a positive net income in 2020 compared to 2019 ($19.8 million profit vs. $45.9 million loss, respectively).
Possible Explanations
While annual fines have been larger in the past, there was a noticeable year-over-year increase from 2019 to 2020. FINRA did not directly comment on any specific reasons for the higher fines this past year, but it is likely that higher fines could be attributed to the effects of the pandemic.
Misconduct
We have seen heightened fraudulent activity in the financial services industry over the past year. This fraudulent activity may have been related to the pandemic in several ways. The markets have been tumultuous and continue to trigger uncertainty, which may have led certain advisors to take actions against their clients’ interests. For example, advisors may have dumped certain investments onto their clients in order to collect high commissions. Additionally, some advisors may have used client funds in opposition to specific instructions from their clients. Overall, claims are likely to continue in the near future as clients discover potential acts of wrongdoing on behalf of their advisors and brokers.
Targeted Schemes
We have also seen targeted investment schemes against particular groups. For instance, a large number of new internet users have been scammed as a result of the shift from in-person to online interactions. Scammers have targeted and exploited this group of individuals in their efforts. Specifically, we have seen the senior population affected by this phenomenon.
Contact Us Today
If you suspect fraudulent activity on behalf of your advisor or broker, please contact us at 239-319-4434. Talk to our experienced securities and financial attorneys for a confidential, no-cost consultation.