Funding FINRA’s Mission

Dear Member Firms:

As a not-for-profit membership organization, we are committed to transparency and engagement with our members regarding our finances. Accordingly, we want to update you on FINRA’s plans over the next several years for funding our mission of protecting investors and promoting market integrity in a manner that facilitates vibrant capital markets.

FINRA’s financial projections indicate that in coming years necessary expenditures will outpace revenues, despite our continuous efforts to prudently manage our expenses and deploy our financial reserves. To address this situation, earlier this year FINRA’s Board of Governors unanimously approved a plan to increase fees in future years, and authorized the filing of this plan later in 2024 with the Securities and Exchange Commission (SEC). FINRA subsequently noted its intention to file fee increases with the SEC this year in our most recent Annual Budget Summary and Annual Financial Report, each published in June. The plan for increasing fees has now been formally filed with the SEC and is available here.

The fee increase will support FINRA’s mission over the next five years—from 2025 through 2029. The bulk of the fee increase will be delayed until 2026 and phased in over several years to provide members with time to plan for budgeting purposes. The fee increase is intended to maintain the existing distribution of FINRA’s regulatory costs across the different sizes of firms and types of business models in our membership.

This financial plan should enable FINRA to perform its regulatory responsibilities through 2029 for the benefit of investors, members, and capital markets alike. We appreciate the feedback and engagement from our members and advisory committees over the course of this year in developing this plan. Here, as in everything we do, we get to better outcomes through the insights, experience, and expertise of our members. 

We have addressed below some key questions you may have regarding these plans. We will look forward to providing ongoing updates regarding FINRA’s financial operations in the months and years ahead.

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1. How Does FINRA Determine to Increase Fees?

FINRA’s Board of Governors must approve all major financial decisions for the organization, including FINRA’s annual budget, significant capital expenditures, overall compensation, increases to regulatory fees, and rebates to members. The Board also reviews FINRA’s financial outcomes throughout the year and approves the publication of our Annual Financial Report. 

FINRA’s Board includes 10 individuals elected or appointed from broker-dealers representing different segments of FINRA’s membership. These member representatives include the current and most recent Chairs of the Board’s Finance Committee.

When reviewing FINRA’s financial plans and resources and determining whether a fee increase is appropriate, the Board is guided by its Financial Guiding Principles, which are published on FINRA’s website along with our financial reports. Among other things, the Financial Guiding Principles provide that, as a not-for-profit membership organization, FINRA targets breakeven cash flows that allow us to appropriately fund our mission (i.e., target operating revenues should equal operating expenses); FINRA must manage expenses carefully, while ensuring we can carry out our regulatory responsibilities effectively; FINRA increases member fees after determining that expenses are appropriately calibrated to regulatory responsibilities; and FINRA should maintain an appropriate level of reserves.  

Informed by these Principles, in March of this year FINRA’s Finance Committee and full Board unanimously approved the planned fee increase and authorized it to be filed with the SEC for immediate effectiveness later in 2024.

2. How has FINRA Been Managing its Expenses?

Consistent with our Financial Guiding Principles, FINRA is committed to managing expenses carefully while ensuring that we fulfill our regulatory mission. This commitment extends to promoting continuous improvement across the organization to ensure FINRA maintains effective and efficient operations. Initiatives over the last several years have included:

• reducing our real estate footprint, including by closing five offices;
   
• making strategic investments in technology and operational improvements that reduce costs for FINRA or its members; 
   
• engaging a third party to conduct operational reviews across core business and support functions to assess our effectiveness and efficiency and identify opportunities for improvement and potential cost savings; and
   
• actively managing overall compensation costs—which, given the nature of our work, remain the greatest driver of FINRA’s budget—while maintaining our ability to attract and retain talented individuals who can help us effectively achieve our mission. Related steps have included implementing voluntary separation programs to reduce compensation expenses.

Our efforts to manage expenses have been effective. FINRA’s total expense growth is significantly less than the FOCUS-reported expense growth at members. Specifically, FINRA’s expenses increased by 41% cumulatively between 2013-2023, while member expenses grew 129%. FINRA’s business headcount (which excludes technology staff and contractors) has seen an average growth rate of less than 1% annually since 2013. Business employee compensation costs rose less than compensation for the average U.S. financial services employee over the same period.

3. Why is a Fee Increase Necessary?

To complement prudent expense management, fee increases will be necessary from time to time to account for increases in FINRA’s costs and scope of operations. FINRA last filed with the SEC a regulatory fee increase like the one discussed herein in 2020, at which time we laid out our plan for funding our mission through 2024.

Since then, FINRA’s Board has continued to analyze financial projections to assess the adequacy of our existing revenue sources. These projections indicate that, absent an increase in fees, FINRA’s expenditures will outpace revenues in the coming years. In addition, the strategic reserves (discussed further below) that previously offset budgetary deficits cannot be relied upon alone to fund future gaps between revenues and expenses. 

There are several drivers of projected increases in FINRA’s operating costs. In recent years, we have faced the same challenging labor market and wage trends that the industry has encountered. Although we anticipate these trends should normalize in coming years, they have and will continue to put upward pressure on our overall cost structure despite the measures described above. Other external, non-wage price increases also flow through to our operations, including technology costs. 

In addition, FINRA’s regulatory responsibilities have steadily increased in recent years with the growth in the size and complexity of the securities markets. The SEC has adopted new rules that FINRA is charged with overseeing, which increase the costs of fulfilling FINRA’s regulatory responsibilities. New investment products, services, and trading venues continue to emerge, and trading volumes and participation in the markets remain at historic highs. These developments—while reflecting positively on the innovation and vibrancy of our capital markets—have added to the scope of FINRA’s responsibilities, even as its other long-standing and important regulatory obligations remain undiminished.

4. How is the Fee Increase Structured?

Our planned fee increase is intended to provide FINRA with sufficient financial resources through 2029. The approach was modified several times based on feedback from industry representatives on FINRA’s Board, as well as from member firms on the FINRA advisory committees that were consulted regarding the fee increase.

Key provisions include the following:

• The fee increase will be phased in over five years, between 2025 and 2029. This reflects member feedback that FINRA should spread the increase out over time rather than impose a significant fee increase in any single year.
   
• The bulk of the fee increase (over 90%) will be delayed until 2026. This reflects member feedback that FINRA should provide advance notice of fee increases so they can be incorporated into annual budgeting processes. 
   
  • Beginning in 2026, FINRA plans to start phasing in increases to the (i) Gross Income Assessment, (ii) Trading Activity Fee (TAF), and (iii) representative-based fees (the Personnel Assessment (PA), member registration fees, and qualification examination fees). Collectively, these fees generate the bulk of FINRA’s fee revenues and reflect most of the critical drivers of FINRA’s regulatory costs (i.e., the size of the firm, the firm’s trading activity, and the number and role of persons registered with the firm).
     
  • Increases in select use-based fees related to specific functions will begin in 2025. This category includes certain fees that have not been adjusted for more than a decade (i.e., the fee for Advertising Regulation Department review of communications with the public and the fee for evaluating time extension requests under Regulation T and Exchange Act Rule 15c3-3(n)). 
     
• The fee increase is designed to be distributed consistently across different firm sizes and business models. This reflects feedback that FINRA should maintain its existing fee distribution across the membership and not reallocate fees in ways that favor particular parties at the expense of others. This approach also will reduce the potential for any unintended impact on the services provided by members that otherwise could arise from significant changes to the existing distribution of fees among members and among fee categories. 

5. What is the Amount of the Fee Increase?

After implementing these planned adjustments, total revenue across all FINRA fees is projected to increase at a compounded annualized growth rate of 5.3% between 2025 and 2029. Excluding the fees related to specific functions that are typically paid by parties other than members, we project this rate to fall to 4.8%. The actual increase in fees paid by firms also may be substantially lower (e.g., between 3% and 4%) after accounting for the fact that many firms pass along some or all of their TAF, PA, and certain other assessments to their customers or registered representatives.

To provide additional detail regarding the expected impact of the fee increase on member firms, we estimate the median aggregate increase by 2029 for different sizes of firms to be as follows:

• For large firms (i.e., firms with 500 or more registered persons, which comprise approximately 4.3% of members), the median aggregate increase in annual fees by 2029 relative to today would be approximately $415,000. 
   
• For mid-size firms (i.e., firms with 151 to 499 registered persons, which comprise approximately 6.4% of members), the median aggregate increase in annual fees by 2029 relative to today would be approximately $82,500. 
   
• For small firms with 10 to 150 registered persons (which comprise approximately 42.8% of members), the median aggregate increase in annual fees by 2029 relative to today would be approximately $4,135. 
   
• For small firms with fewer than 10 registered persons (which comprise approximately 46.5% of members), the median aggregate increase in annual fees by 2029 relative to today would be approximately $625. 

The assumptions upon which these estimates are based are laid out more fully in the filing with the SEC. The estimates do not take into account pass through of any fees by member firms although, as noted above, in practice many firms pass along some or all of their TAF, PA, and certain other assessments to their customers or registered representatives. 

FINRA's projections indicate that in 2029, assuming the long-term growth rate in member revenues that was realized between 2013 and 2023 carries forward in future years, FINRA's fees as a percentage of total member revenues will be approximately 0.31%, which is generally consistent with the historical average realized since 2013 of 0.30%.

6. What Role do FINRA’s Reserves Play in its Financial Planning?

FINRA’s reserves originally derived from the sale of Nasdaq, and since then have supported FINRA’s operating budget and strategic investments in FINRA’s technology capabilities. Consistent with our Financial Guiding Principles, FINRA’s Board considers the size of the reserves and their expected growth and income in conducting its financial planning. FINRA’s Board has targeted the reserves at a level equal to at least one year of expenditures. This target takes into consideration FINRA’s not-for-profit structure, the significant constraints on its ability to quickly increase fees or cut costs consistent with its regulatory obligations, and the adversely correlated funding risks it faces (e.g., FINRA’s regulatory responsibilities may increase due to external factors that may also cause FINRA’s revenues to decline).

In recent years, FINRA has relied on its reserves to support its expanding regulatory mission and to manage budgetary deficits, which has helped avoid fee increases. In particular, from 2013 through 2023, FINRA has withdrawn more than $400 million from its reserves to fund budget deficits, thereby deferring fee increases. While FINRA will continue to strategically draw down on its reserves where consistent with the Financial Guiding Principles, FINRA’s financial projections indicate that in the next few years, “excess” reserves, by themselves, will not be sufficient to fund operating deficits. With the planned fee increase, the reserves are expected to be at their targeted level in 2029 and our anticipated operating budget will be evenly balanced, with expected revenues approximating expected expenditures. 

7. What Happens if FINRA’s Revenue and Expense Projections Turn Out to be Inaccurate?

The Board will continue to review FINRA’s financial outcomes on a regular basis to consider whether revenues and expenses warrant any changes to its financial planning. Consistent with FINRA’s status as a not-for-profit membership organization, responses to material excess revenues may include a fee rebate or a reduction or deferral in planned fee increases. Responses to materially insufficient revenues would in the first instance include relying on FINRA’s reserves, carefully examining expenses, and if necessary, a further fee increase.

8. What Controls are in Place to Ensure Appropriate Expense Management?

FINRA’s expense management is subject to multiple levels of oversight. As noted above, FINRA’s Board routinely monitors FINRA’s finances and operations and must approve key financial decisions, including with respect to its annual budget, compensation, fees, and capital initiatives. In addition, FINRA’s funding and operations are closely monitored by a dedicated examination program within the SEC, the FINRA and Securities Industry Oversight program, as part of the SEC’s comprehensive and ongoing oversight of FINRA. By statute, the U.S. Government Accountability Office periodically reviews and provides a public report evaluating the SEC’s oversight of FINRA, including with respect to the use of funding to support FINRA’s mission (including the methods and sufficiency of funding) and FINRA’s executive compensation practices. 

FINRA will also continue to provide public transparency regarding its financial performance on an ongoing basis. Each year, we publish an extensive audited Annual Financial Report and a Budget Summary regarding our operations, as well as a report on our use of fine monies. Collectively, these reports and our Financial Guiding Principles provide comprehensive information regarding our policies and operations with respect to our budgets, revenues, costs, reserves, and use of fine monies, among other information.

9. How Does FINRA Consider Broader Regulatory Impacts on its Members?

In consulting with advisory committees and members regarding the planned fee increase, FINRA heard feedback that FINRA’s regulatory fees, while important, do not impose nearly as significant a burden on firms as do the regulatory requirements with which they must comply, including the implementation of new rules. FINRA appreciates this feedback and is committed to carefully considering the impact on members of new FINRA rules, as well as continuing to conduct retrospective reviews of existing FINRA rules that may no longer serve their intended purpose effectively and efficiently. While FINRA cannot control other regulatory requirements imposed on members by other regulators, we are committed to considering the cumulative effect of these requirements in reviewing FINRA’s existing rules and implementing any new FINRA rules. 

FINRA also heard concerns about the costs of the Consolidated Audit Trail (CAT), and the allocation of these costs to members. The FINRA fees discussed above, which support the ongoing regulatory operations of FINRA, do not include any fees related to the cost of CAT. 

• CAT is mandated by the SEC and is operated by CAT LLC in accordance with requirements specified by the SEC. CAT LLC is owned and governed by 26 self-regulatory organizations, one of which is FINRA, and FINRA’s control of CAT LLC is therefore limited to a one out of 26 vote. FINRA opposed the current CAT funding model due to concerns regarding the financial impact of this framework, including on FINRA and FINRA members. However, the funding model was approved by the SEC, thereby obligating FINRA to support its implementation. FINRA remains committed to working with the SEC and the other self-regulatory organizations to identify opportunities to reduce CAT LLC’s costs in operating CAT.  
   
• While FINRA’s long-term funding requirements need to be addressed, the structure of its fee increase will help to mitigate the near-term cumulative impact of regulatory fees on members—since the bulk of FINRA’s fee increase is deferred until 2026 and spread out through 2029. Implementing this plan now also provides members with clarity regarding FINRA’s fees over the next five years. 

The FINRA fees discussed above also do not include costs associated with the Securities Lending and Transparency Engine (SLATE), which is a FINRA system designed to comply with the SEC's mandate that, as a registered national securities association, FINRA collect and disseminate information regarding securities lending transactions. FINRA has filed a proposal with the SEC to implement SLATE reporting and dissemination. In addition, to recover costs associated with SLATE, FINRA separately will file a proposed rule change to implement reporting fees and fees associated with SLATE data products, which will be paid by members and non-members that report transactions to SLATE or that subscribe to SLATE data products. The SLATE costs sought to be recovered in the separate fee proposal are currently expected to be less than $5 million a year.