FINRA is a not-for-profit, self-regulatory organization (SRO) dedicated to promoting investor protection and market integrity in a manner that facilitates vibrant capital markets. One of FINRA’s tools for achieving this objective is fair and effective enforcement of member firms’ compliance with securities laws and regulations.
FINRA’s highest priority when it identifies misconduct is to seek restitution for harmed investors. However, like many other self-regulatory organizations in the securities industry, FINRA also imposes fines on its member firms to discourage further misconduct. For FINRA, fine amounts are based on public, pre-established sanction guidelines and the facts and circumstances of the individual case. FINRA does not target any minimum dollar amount of fines to be issued. FINRA’s operating budget does not include fines, and fine monies are not considered in determining employee compensation and benefits.
FINRA’s use of fine monies is governed by FINRA’s Financial Guiding Principles (Principles), which are published to provide more transparency about how FINRA manages financial resources to ensure FINRA fulfills its regulatory responsibilities and furthers its mission. FINRA’s Board of Governors (Board) reaffirmed the Principles in September 2021. As the Principles describe, FINRA accounts for fine monies separately, and any use of such monies is approved, separately from other expenditures, by the Board or its Finance, Operations and Technology Committee (Finance Committee). The Board or the Finance Committee may authorize the use of fine monies only for one of four enumerated purposes:
- capital initiatives or nonrecurring strategic expenditures that promote more effective and efficient regulatory oversight by FINRA (including leveraging technology and data in a secure manner) or that enable improved compliance by member firms;
- activities to educate investors, promote compliance by member firms through education, compliance resources or similar projects, or ensure FINRA employees are highly trained in the markets, products and businesses it regulates;
- capital initiatives required by new legal, regulatory or audit requirements; or
- replenishing reserves in years where such reserves drop below levels reasonably appropriate to preserve FINRA’s long-term ability to fund its regulatory obligations.
Under the Principles, FINRA also makes public a description of the use of fine monies approved by the Board or its Finance Committee during the prior year. This report describes the Board-approved initiatives that were supported by 2022 fine monies.
FINRA issued $48.1 million in fines in 2022*, and the Board determined that there were $111.4 million in fines-eligible expenditures in 2022 (i.e., capital initiatives, strategic expenditures and other activities eligible to be funded by fine monies based on the criteria set forth above). Because the total of fines-eligible expenditures exceeded the amount of fines issued in 2022, the balance of $63.3 million was funded from FINRA’s reserves and excess operating results.
|Fines-eligible expenditures funded by 2022 fines issued||$48.1 million
|Fines-eligible expenditures funded by reserves and excess operating results||$63.3 million|
|Total 2022 fines-eligible expenditures funded by fines, reserves and excess operating results||$111.4 million|
The 2022 fines-eligible expenditures fall under two broad categories that align with the purposes set forth in the Principles:
Initiatives supported by fines and reserves
|Capital initiatives or nonrecurring strategic expenditures that promote more effective and efficient regulatory oversight by FINRA (including leveraging technology and data in a secure manner) or that enable improved compliance by member firms, and capital initiatives required by new legal, regulatory or audit requirements.||$89.2 million|
|Activities to educate investors, promote compliance by member firms through education, compliance resources or similar projects, or ensure FINRA’s employees are highly trained in the markets, products and businesses that it regulates.||$22.2 million|
The fines-eligible expenditures within these categories, which are described in more detail below, furthered FINRA’s goals to implement efficient oversight programs that protect investors and the markets; modernize critical securities industry infrastructure; strengthen the ability to track trading across markets; enhance examination, investigation and disciplinary programs; enhance the efficiency of FINRA systems; facilitate compliance by member firms; equip investors with knowledge and resources to help them navigate ever-evolving markets, products and services; and expand training to ensure staff is prepared for new regulatory challenges. Some of these projects are ongoing, multi-year initiatives that have extended into 2023 and, in some cases, will continue into future years.
*Note: The 2022 fine amount excludes disgorgement awards of $6.4 million, which are treated as fines in FINRA’s Annual Financial Report and contributed to the FINRA Investor Education Foundation once paid to FINRA.
Capital Initiatives and Nonrecurring Strategic Expenditures
Enhancing FINRA’s Examination, Investigation and Disciplinary Programs
In 2022, FINRA invested $52.2 million in several initiatives to enhance various tools and systems used for our examination, investigation and disciplinary programs. These initiatives are intended to better align resources with the risks and business practices of member firms; better identify the brokers and firms that may present the greatest risk to investors and the markets; and modernize the systems supporting disciplinary processes.
- Advanced Analytics Transformation—FINRA is transforming the advanced analytics program supporting the examination, surveillance and enforcement functions to increase coordination, communication and transparency. In 2022, FINRA invested $17.5 million to build a centralized data services and analytics platform that serves as the foundation for numerous applications supporting FINRA’s regulatory programs.
- Examination and Investigation Program Tools—FINRA invested $17.1 million to enhance the tools and systems used for examinations and investigations. The investment includes costs to implement an enhanced process to address risks from broker-dealers with a significant history of misconduct, costs to build standardized investigative analytic tools and spending to develop tools to analyze market data, including criminal and civil records. In addition, FINRA enhanced the Bluesheets, SONAR and other systems FINRA uses to conduct insider trading and fraud surveillance. FINRA expanded the Blotter datasets and enhanced the capability to ingest and analyze blotter and stock records. The spending also includes costs to transform the National Cause and Financial Crimes Detection Programs to provide additional support for specialists including those focused on cybersecurity and anti-money laundering programs, as well as the second phase of an initiative to expand cross-team collaboration.
- Enforcement Digital Transformation and Enforcement Tools—In 2022, FINRA invested $8.9 million to modernize and enhance the systems and tools supporting Enforcement disposition processes. The investment includes spending to enhance the matter data, case management and insight platforms, as well as to replace the tool FINRA uses to assist with electronic communications reviews, investigations and legal processes. In addition, we implemented a singular standardized case file structure with improved search capabilities.
- Risk Monitoring Platform—FINRA invested $8.7 million to enhance the technology that supports the platform FINRA examiners and risk monitoring analysts use to manage their work efficiently. The investment includes costs to improve how FINRA gathers and processes data and regulatory responses, as well as to improve the user experience for the eFOCUS system firms use to submit their Financial and Operational Combined Uniform Single reports to FINRA.
Strengthening Regulators’ Ability to Track Trading Across Markets
Combining data from FINRA reporting and transparency systems and the Consolidated Audit Trail (CAT), FINRA has developed a comprehensive regulatory audit trail as an essential part of the work to monitor the integrity of the markets. With the foundation provided by FINRA’s regulatory audit trail and newly available CAT data, in 2022 FINRA conducted cross-market surveillance for all trading in U.S.-listed equities and options. FINRA is also responsible for the surveillance of the unlisted equity market and fixed income instruments that trade in the over-the-counter market, and conducts surveillance to identify potential market manipulation or other misconduct. In 2022, FINRA allocated $16.7 million to a range of initiatives to strengthen the ability of FINRA and other regulators to monitor equity, option and fixed income market activity.
- Market Surveillance Patterns and Reviews and Metrics Reporting—FINRA invested $8.4 million to enhance the sophisticated “patterns” we use to detect a wide variety of compliance issues and suspicious conduct across markets, enhance reviews of the results of those patterns and respond rapidly to market events. In 2022, FINRA employed capabilities enabling firm-centric views of risk and conduct for compliance and trade reporting, modified the workflow and analytics in response to new Inter-Dealer Quotation System rules and developed two multi-instrument models using artificial intelligence.
- Use of Consolidated Audit Trail Data—In 2022, FINRA invested $5 million in a multi-year initiative to integrate and implement CAT data into its surveillance and CAT compliance programs. (These investments and others described herein do not include expenses related to FINRA’s role as a participant in CAT LLC or FINRA CAT, LLC’s role as the plan processor for the CAT.)
- Transparency Systems—FINRA invested $3.3 million as part of a multi-year initiative to improve the Multi-Product-Platform (MPP), which facilitates the collection and dissemination of transaction and quotation data across markets that FINRA supervises—namely over-the-counter trading of listed equities, unlisted equities, corporate bonds, Treasury securities and a variety of other fixed income instruments. This multi-year initiative will upgrade the MPP to better handle current market and regulatory compliance requirements. In addition, FINRA is replacing the system used to report and process corporate actions in unlisted equity securities.
Improving FINRA Compliance Platforms for Member Firms
In 2022, FINRA invested $13.4 million to improve FINRA’s external-facing digital platform and other firm compliance filing systems. In 2022, FINRA completed the Digital Experience Transformation program, a multi-year effort to integrate and simplify brokerage firms’ digital interactions with FINRA, facilitating more efficient and effective compliance programs. FINRA updated the systems and tools that help firms manage compliance tasks, submit information and manage how they collaborate with FINRA. In addition, FINRA continued to modernize the aging technology platform the Advertising Regulation Department uses and enhanced the Corporate Finance System to support our ability to engage in more efficient and effective oversight of public offerings and private placements.
Modernizing Securities Industry Infrastructure Administered by FINRA
FINRA administers a number of technology systems that support the regulation of brokers and their firms by FINRA, as well as by the SEC, state regulators and other SROs. FINRA continues to enhance its systems to adapt to the changing brokerage industry, and, in 2022, allocated $6.9 million to modernize several systems it administers.
- Registration, Testing and Corporate Systems Enhancements—FINRA invested $4.1 million to transform and enhance its registration and testing systems. In 2022, investments included costs to transform the qualification exam platform, enhance our registration system to more efficiently process 2080 waivers and data input by firms, automate accounts governance, and enhance our Testing and Dispute Resolution programs.
- Continuing Education (CE) Transformation—FINRA invested $2.8 million on a multi-year initiative to transform the CE program for securities professionals. In 2022, the investment included costs to transform the Regulatory Element to an annual program, as well as implement the CE Marketplace program and the Maintaining Qualifications Program (MQP), which reduces impediments to requalification.
Education, Compliance Resources and Training
Helping Firms Comply With Rules
In 2022, FINRA spent $11.6 million to fund operations and support for various tools and resources to help improve compliance by the firms and individuals it regulates. FINRA offered virtual and in-person conferences and educational programs**, tailored to the unique business needs of operating in a hybrid-work environment, including a one-day FINRA Firm Grouping Conference designed to provide financial professionals associated with FINRA member firms the opportunity to engage in key discussions with FINRA staff. In 2022, FINRA expanded opportunities for financial professionals to connect in person with FINRA experts and senior leaders at FINRA’s events. In addition, FINRA offered topic-based virtual programs and conferences focused on diversity, equity and inclusion in the capital markets, and the innovative technology FINRA uses to protect investors and ensure market integrity. This cost includes the FINRA Institute at Georgetown Certified Regulatory and Compliance Professional (CRCP)® program, which provides compliance, legal and regulatory professionals with an in-depth understanding of the foundation, theory and practical application of securities laws and regulations.
In addition, FINRA offered virtual conference panels on various regulatory topics and business line specific forums to member firms free of cost, including Federal Bureau of Investigation Cyber Threat briefings. FINRA also refreshed the compliance tools webpage, including creating new checklists and resources for firms, developed a machine-readable rulebook and enhanced the Report Center. This cost also includes spending for a transformation of the contact center experience for firms, financial professionals, regulators and the investing public. Through the multi-year project, FINRA is implementing new innovative tools, including a virtual assistant and advanced callback features, to improve response time and efficiency.
**Note: The program costs include expenses net of funding received from registration fees or other revenues related to conferences and educational programs.
Training FINRA Staff Regarding the Markets, Products and Businesses That FINRA Regulates
FINRA continues to expand the training it provides to staff, including examiners, to ensure staff is prepared for new regulatory challenges. In 2022, FINRA spent $6.4 million on regulatory-focused training for staff in FINRA’s Member Supervision, Market Regulation and Enforcement departments.
FINRA provides investors with unbiased information, tools and resources that can equip them to make informed decisions about their assets and the investment professionals with whom they work. In 2022, FINRA invested $4.2 million in various investor education programs.
- Investor Education Programs—In 2022, FINRA enhanced BrokerCheck, engaged in a comprehensive project to cull, consolidate and refresh educational content for retail investors on FINRA.org with an emphasis on enhancing the search engine optimization of FINRA.org/Investors, and re-imagined its Investor Forum events, including creating new, virtual events for working professionals.
- Investor Education Foundation—Throughout the year, FINRA provided management oversight and program and administrative support (including investing, legal, tax and treasury) to the FINRA Investor Education Foundation to carry out its financial capability-building initiatives.*** In 2022, the FINRA Investor Education Foundation undertook a wide variety of projects, including partnering with Girl Scouts of the USA to launch new financial education programming and resources to meet the needs of girls and their families in underserved communities. The FINRA Investor Education Foundation also released new research reports that examined a wide range of topics, including the impact of the pandemic on financial capability, the impact of financial education programs on financial knowledge and behaviors, and correlations between aging, financial fragility and susceptibility to fraud.
***Note: The direct program costs of the FINRA Investor Education Foundation are funded from the assets of the FINRA Investor Education Foundation, rather than from fine monies or reserves.