Increases Transparency into Budget; Includes No Fee Rate Increases for Member Firms
WASHINGTON — The Financial Industry Regulatory Authority today published for the first time its
Greater Visibility into Process, Strong Governance Framework
“As a not-for-profit, self-regulatory organization whose operations are funded by industry fees – without the support of any taxpayer dollars – we must prudently manage our finances to ensure we can fund our mission to protect investors and promote market integrity in a manner that facilitates vibrant capital markets,” Chairman William H. Heyman and CEO Cook wrote in a letter that accompanied release of the Principles and Budget Summary. “In the interest of promoting greater transparency regarding our operations, we are publishing – for the first time – a summary of our Financial Guiding Principles, as well as an overview of FINRA’s 2018 budget.”
Key elements of the Principles include:
- Funding FINRA’s mission to protect investors and safeguard market integrity;
- Ensuring financial transparency, building on FINRA’s audited annual report by adding an annual budget summary;
- Managing expenses responsibly, including employee compensation and capital initiatives;
- Maintaining reasonable member fees, increasing them only after evaluating other potential sources of funding (such as drawing down on reserves) and determining that expenses are appropriate to meet regulatory responsibilities;
- Using fines to promote compliance and improve markets. The Principles introduce enhanced governance procedures: fine monies will be accounted for separately and their use must be approved by the Board of Governors or its Finance Committee, they will be targeted to one of several specified purposes, and they will be itemized and disclosed on an annual basis;
- Sustaining appropriate financial reserves, with a goal of maintaining reserves equal to at least one year of expenditures.
“The Financial Guiding Principles set forth the key concepts and considerations that guide FINRA’s longer-term financial planning and the development of our annual budget,” Heyman and Cook added in the letter. “The Principles provide more transparency about how we manage our financial resources in order to fulfill our regulatory responsibilities and further our mission.”
Budget Meets Regulatory and Financial Challenges, Reflects Principles
FINRA’s budget for 2018 is designed to meet the evolving challenges posed by FINRA’s ongoing regulatory responsibilities and flat revenues in ways that reflect the Financial Guiding Principles. The budget summary notes that assets under management by member firms have increased, the number of registered representatives has remained largely constant and innovations in fintech and other areas present new challenges. In addition, the Securities and Exchange Commission is relying more on FINRA to supervise broker-dealers. At the same time, 2018 revenue is projected to remain flat relative to 2013.
Despite these revenue challenges, FINRA will not increase member firm fees at this time. Instead, in line with the Financial Guiding Principles, FINRA will leverage excess reserves to support operations while deferring fee increases. This approach is not new – FINRA has not increased member firm fee rates since 2013, and has taken other steps that have reduced costs for the industry.
The budget summary notes that since 2013, FINRA’s expense increases have stayed largely in line with inflation, at an annual rate of approximately 1.5 percent. Cost-saving efforts have focused on managing compensation costs, as well as other organizational and process improvements. FINRA has reduced incentive compensation and held senior officer salaries flat for the last two years, and will hold senior officer salaries flat again in 2018. In addition, FINRA has identified further expense reductions for 2018, and through FINRA360, will continue to seek other efficiencies and opportunities to better leverage technology to do our work.
The summary of the budget for 2018 also describes how funds will be allocated among key functions; breakdowns of cash-flow uses, operating expenses and capital initiatives; and certain historical trends.
FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.