Report on Use of 2023 Fine Monies

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. In furtherance of this mission, FINRA administers a fair and effective program to enforce 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. FINRA bases fine amounts on the facts of each case and considers any aggravating and mitigating factors, with sanction determinations guided by FINRA’s Sanction Guidelines and recent settlements that are similar in nature. FINRA does not target any minimum dollar amount of fines to be issued. FINRA’s operating budget does not include fines, and no compensation or benefits decisions are based on fines imposed. 

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 2023. 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.

In accordance with 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 2023 fine monies.

Summary

FINRA issued $85.5 million in fines in 2023¹, and the Board determined that there were $97.8 million in fines-eligible expenditures in 2023 (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 2023, the balance of $12.3 million was funded from FINRA’s reserves and excess operating results.

The 2023 fines-eligible expenditures fall under two broad categories that align with the purposes set forth in the Principles:

Initiatives supported by fines and reserves

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 2024 and, in some cases, will continue into future years.

Capital Initiatives and Nonrecurring Strategic Expenditures

Enhancing FINRA’s Examination, Investigation and Disciplinary Programs

In 2023, FINRA invested $53.8 million in several initiatives to enhance various tools and systems we use 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.

• Examination and Investigation Program Tools—FINRA invested $22.3 million to enhance the tools and systems we use for examinations and investigations. The investment includes costs to modernize the examination and exam planning and scheduling platforms. In addition, FINRA enhanced the membership application submission process and developed the foundational elements of an analytics toolset for investigations. Costs also include spending to improve the analysis of high-risk firms and the Initial Review Group systems and workflow, as well as to enhance firm data collection tools, enhance ingestion of securities-based swaps data and develop a related market monitoring tool.  
• Advanced Analytics Transformation—In 2023, FINRA invested in the continuing transformation of the advanced analytics program supporting the examination, surveillance and enforcement functions. FINRA invested $20.3 million to build and operationalize a centralized data services and analytics platform that serves as the foundation for numerous applications supporting FINRA’s regulatory programs. 
• Enforcement Digital Transformation—FINRA invested $8.9 million to modernize and enhance the systems and tools supporting the Enforcement disposition processes. In 2023, costs included spending to implement technology solutions to support management of cases, documents and correspondence, as well as real-time data reporting and tools to assess disciplinary matters. We also built analytic tools to assist with the investigative process.  
• Risk Monitoring Platform—FINRA invested $2.3 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 address the consistency of firm risk data and improve data sharing and to add new data sets to improve the quality of risk assessment.

Modernizing Securities Industry Infrastructure Administered by FINRA

FINRA administers a number of 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 2023, allocated $7.4 million to modernize several systems it administers.

• Registration, Testing and Dispute Resolution Systems Enhancements—FINRA invested $3.8 million to transform and enhance its registration, testing and Dispute Resolution systems, including costs to transform the qualification exam platform. 
• Continuing Education (CE) Transformation—FINRA invested $3.6 million on a multi-year initiative to transform the CE program for securities professionals. In 2023, the investment included costs to implement the CE Marketplace program and expand the Maintaining Qualifications Program (MQP), which reduces impediments to requalification. 

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 surveillance program as an essential part of the work to monitor the integrity of the markets. In 2023, 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 2023, FINRA allocated $6.7 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—FINRA invested $4.0 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. 
• Transparency Systems—FINRA invested $2.7 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.      

Improving FINRA Platforms for Member Firm Compliance

In 2023, FINRA invested $5.8 million to improve FINRA’s external-facing digital platform and other firm compliance filing systems. FINRA updated the systems and tools that help firms manage compliance tasks, submit information and manage how they interact with FINRA. In addition, FINRA updated the systems firms use to download registration data, began implementing a courthouse management platform for our hearing officers to support electronic filings, and continued to modernize the Advertising Regulation platform. 

Education, Compliance Resources and Training 

Helping Firms Comply With Rules

In 2023, 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. The investment included new tools and resources offering guidance on FinTech applications, digital assets, alternative trading systems and the new member application process. 

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 in-person FINRA Firm Grouping Conference and virtual webinars designed to provide financial professionals associated with FINRA member firms the opportunity to engage in key discussions with FINRA staff. In 2023, FINRA offered topic-based virtual programs focused on municipal securities, as well as an in-person conference focused on protecting senior investors. Expenditures for 2023 also include costs associated with 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 education on various regulatory topics and business line specific forums to member firms free of cost, including Federal Bureau of Investigation Cyber Threat briefings and education on identifying fraud. In addition, FINRA partnered with NASAA and the SEC to offer a webinar on elder abuse awareness. 

The total also includes spending to transform the support 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 2023, FINRA spent $8.3 million on regulatory-focused training for staff in FINRA’s Member Supervision, Market Regulation and Enforcement departments.

Educating Investors

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 2023, FINRA invested $4.2 million in various investor education programs.

• 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.** The FINRA Investor Education Foundation released a dozen new research reports, including studies examining the investing attitudes and behaviors of Gen Z investors, the financial capability of military veterans and the habits of new investors. In addition, the FINRA Investor Education Foundation actively engaged with more than 50 national and community-based project partners, from AARP’s Fraud Watch Network and the American Library Association to the Girl Scouts of the USA, United Way Worldwide and more to help underserved Americans build the financial capability needed to participate in U.S. capital markets and protect their investments against financial fraud.
• Investor Education Programs—In 2023, FINRA continued to enhance BrokerCheck and refresh educational content for retail investors on FINRA.org.

**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.