Yesterday, FINRA released its 2015 Annual Report, and it contained maybe one surprising figure: a decrease in the amount of fines it levied.  Beyond that, however, it was more of the same that we have seen over the last few years; just read my blog from a year ago about the 2014 report and you will see that nothing has really changed from trends I observed last year:

  • Continuing decrease in the number of member firms  – 3,916 in 2015 vs. 3,957 in 2014
  • Continuing decrease in the number of registered representatives – 640,111 in 2015 vs. 643,322 in 2014
  • Continuing decrease in the number of branch offices – 161,821 in 2015 vs. 162,655 in 2014
  • Continuing increase in number of FINRA employees – about 3,500 in 2015 vs. about 3,400 in 2014
  • Continuing increase in FINRA’s expenses – $1.038 billion in 2015 vs. $964.8 million in 2014 (including a $36.2 million increase in compensation and benefits)
  • Continuing increase in number of Enforcement actions brought – 1,512 in 2015 vs. 1,397 in 2014
  • And, of course, continuing increase in number of senior management personnel receiving more than $1 million in compensation packages

In short, FINRA is regulating fewer firms, fewer reps, and fewer branch offices than ever, but, remarkably, with more people than ever at a higher price than ever. It is hardly a wonder, then, that despite revenues of $992.5 million (which, with the exception of $93.8 million in fines collected, comes from YOU and your firm), FINRA experienced a loss of $39.5 million.  No worries, though.  FINRA still has assets of approximately $2.4 billion (including nearly $2 billion in cash and investments), so it can undoubtedly weather this storm.

None of this would be particularly remarkable if, in fact, FINRA was actually achieving its statutory mandate of investor protection and market integrity. But, the problem is, at least in the eyes of the industry, FINRA is not effective or nimble, as Mr. Ketchum characterized it in the Report.  To the contrary, FINRA is, generally speaking, too slow, too reactive, and too rigid in its interpretations to instill any confidence in the investing public, or its membership, that it is on the job, detecting and preventing securities fraud.  FINRA lumbers along, for the most part, bludgeoning small members and their officers into submission while big firms skate by with fines that, while admittedly sometimes sizeable, are readily affordable.  Too many firms now spend too much time on a weekly, if not daily, basis, just responding to regulatory inquiries that take time, money and effort to respond to, but go nowhere, or achieve little in terms of actual compliance.  Ultimately, FINRA’s effectiveness is like the old Woody Allen joke about the bad restaurant:  the food is terrible, and the portions are so small!