2023 FINRA Sanctions Study

The fines reported by FINRA in 2023 increased to $89 million from $54.5 million in 2022, a 63% increase.[1] The fines in 2023, however, included a single $24 million fine against one firm. Without that one large fine, the total would have been $65 million, only a 19% increase from 2022.

Listed below are the top FINRA enforcement issues for 2023 measured by total fines assessed: [4]

No. 1      Spoofing cases, making their first appearance on Eversheds Sutherland Top Enforcement Issues list, resulted in the most fines assessed by FINRA in 2023. Though there were only two spoofing cases in 2023, one of those cases resulted in a $24 million fine. In that case, FINRA found that the firm engaged in 717 instances of spoofing a US Treasury security between October 2014 and February 2021. [5] Spoofing is a type of fraudulent trading that involves the use of non–bona fide orders to create a false appearance of market activity on one side of the market to induce other market participants to execute against bona fide orders entered on the opposite side of the market in the same security or a correlated product.

No. 2      Trade Reporting cases resulted in the second most fines for FINRA in 2023. This marks the fourth consecutive year that trade reporting cases have been on the Eversheds Sutherland Top Enforcement Issues list. FINRA reported 14 trade reporting cases in 2023, resulting in a total of $20 million in fines. In the largest trade reporting case, FINRA fined a firm $6 million for submitting blue sheets to FINRA that failed to include the required transactions or transaction information or included incorrect information for at least 97 million transactions. [6]

No. 3      Anti-Money Laundering/Bank Secrecy Act issues resulted in the third most fines for FINRA in 2023. In 2022, this category failed to make the Eversheds Sutherland Top Enforcement Issues list after having landed in the top spot six years in a row. FINRA reported 13 AML/BSA cases in 2023, with fines totaling $8 million, primarily driven by one case  with a $6 million fine. In that case, FINRA found that the firm applied an incorrect Suspicious Activity Report (SAR) filing threshold for more than ten years and that the firm failed to establish a procedure reasonably designed to detect and cause reporting of suspicious transactions. [7]

No. 4      Regulation Best Interest cases resulted in the fourth most fines for FINRA in 2023. This is the first time that Reg BI cases have been on the Eversheds Sutherland Top Enforcement Issues list, as FINRA brought its first such enforcement action in October 2022. [8] FINRA reported 15 Reg BI cases in 2023, resulting in a total of $6 million in fines. In the largest Reg BI case, FINRA fined a firm $5.5 million for failing to reasonably supervise transactions that its registered representative placed directly with product sponsors on behalf of firm customers, for failing to collect information for customers’ investment profiles relevant for making suitability determinations and for providing inaccurate information to customers about mutual fund or unit investment trust switch transactions. [9]

No. 5    Suitability cases resulted in the fifth most fines for FINRA in 2023 after failing to make the Eversheds Sutherland Top Enforcement Issues list in 2022. FINRA reported 33 suitability cases in 2023, totaling $5 million in fines. FINRA fined one firm $3 million for, among other things, not exercising reasonable due diligence before approving customers for options trading by considering only information contained in an “options suitability questionnaire” rather than other, contradictory information provided to the firm. [10]

Decline in Restitution Continues – As noted above, the amount of restitution that FINRA ordered decreased 66% from 2022 to 2023, continuing a multi-year trend of decline from $47 million in 2021 to $21 million in 2022 to only $7 million in 2023. Mr. Pollet notes, “FINRA has previously emphasized the importance of putting wrongfully obtained money back in the hands of harmed investors, yet the decline in restitution would appear to cut against that goal. More recently, however, FINRA has suggested that as firms proactively remediate customer losses through a strong culture of compliance, the amount of restitution that FINRA needs to order would decrease. We’re going to keep a close eye on how this plays out in 2024.”    

Reg BI – In 2022, FINRA brought its first Regulation Best Interest enforcement action. One year later, Reg BI broke into the Eversheds Sutherland Top Issues list. This trend of more and more Reg BI cases is likely to continue in 2024 and beyond. “As we anticipated last year,” Mr. Rubin said, “cases involving violations of Reg BI have increased significantly, and there is no indication that this momentum will slow. Indeed, because FINRA is the primary regulator for broker-dealers, we expect that as FINRA expands its Reg BI examinations and investigations, we will see a corresponding decrease in the role played by the SEC.”

Crypto – In November 2022, FINRA launched a targeted exam on firms’ communications with customers regarding crypto assets. The exam’s focus was primarily on firms’ communications with the public under FINRA Rule 2210, which requires, among other things, that communications with the public be fair and balanced and that they provide a sound basis for evaluating the facts regarding any product or service discussed. In early 2024, FINRA released its findings from the exam. Notably, of the more than 500 crypto asset-related retail communications reviewed, FINRA found that approximately 70% had potential substantive violations of Rule 2210. FINRA highlighted examples, including false statements or implications that crypto assets functioned like cash or cash equivalent and comparisons of crypto assets to other assets without providing a sound basis to compare varying features and risks. Such compliance with Rule 2210 for crypto assets is even more relevant now with the SEC’s recent approval of spot bitcoin Exchange-Traded Products (ETPs), paving the way for broker-dealers to offer retail investors exposure to bitcoin through approved ETPs.