Interim Report on Use of Fine Monies

Background

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 members to discourage further misconduct. Fine amounts are based on public, pre-established guidelines and the facts and circumstances of the individual case. FINRA does not target any minimum amount of fines to be collected. FINRA does not budget for fines in its operating budget, and fine monies are not considered in determining employee compensation and benefits.

FINRA policy has long required that fine monies be allocated to capital and strategic initiatives. In January 2018, we updated and enhanced this policy as part of a broad review of FINRA’s financial resources that we undertook under the FINRA360 organizational improvement initiative. The Financial Guiding Principles and summary of our budget, which we release annually, provide more transparency about how we manage our financial resources to ensure we fulfill our regulatory responsibilities and further our mission. With respect to fine monies, these Principles also adopted enhanced governance procedures, usage restrictions and transparency requirements.

Beginning with the 2018 fiscal year, fine monies are now accounted for separately and any use of fine monies must be approved, separately from other expenditures, by FINRA’s Board or its Finance, Operations and Technology Committee (Finance Committee). The Board or 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 our employees are highly trained in the markets, products and businesses we regulate;
• capital/initiatives required by new legal, regulatory or audit requirements; and
• replenishing reserves in years where such reserves drop below levels reasonably appropriate to preserve FINRA’s long-term ability to fund its regulatory obligations.

The Financial Guiding Principles state that we will itemize and disclose our use of fine monies on an annual basis.  Following an interim report (https://www.finra.org/about/interim-report-use-2017-fine-monies) in June 2018 describing how we used fine monies collected in 2017, we published a complete report in 2019 addressing how we used fine monies that were collected in 2018.

Summary of Actions

• Published annual report on the use of fine monies.