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Fines Can Soar Into Multi-Millions

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A record year of FINRA enforcement activity heralds heightened scrutiny on a bevy of issues including cybersecurity, anti-money laundering policies and protection for senior clients, legal and regulatory experts caution.

Analyzing the regulator’s 2016 enforcement actions, New York law firm Eversheds Sutherland found that while the total number of cases the industry regulator brought last year dipped slightly from 2015, the monetary fines it assessed nearly doubled to $176 million.

That figure was far and away a record for FINRA penalties, and amounted to a 529% increase since 2008, according to Eversheds Sutherland’s analysis.

A main driver of the ballooning fines has been FINRA’s increasing tendency to levy what Eversheds Sutherland calls “super-sized” penalties of $1 million or more — in some cases, much more, such as the $20 million fine the regulator levied against MetLife Securities last May in a case involving variable annuities.

One area where experts anticipate mounting scrutiny from regulators is cybersecurity, which the SEC and FINRA have both identified as an examination priority. Neither regulator has brought many enforcement cases solely pegged to cyber deficiencies, but that could quickly change as authorities come to expect firms to have in place a baseline cyber framework.

“Even though some of these things might be best practices, I think in the future we’ll see them more as regulatory requirements that are just expected by regulators as opposed to best practices,” Rubin adds. “So to the extent that you haven’t looked at your cybersecurity practices, it probably makes sense to do so before FINRA or the SEC come in on your next exam.”

FINRA appears to be on a similar trajectory with its oversight of firms’ anti-money laundering practices, which accounted for more enforcement cases in 2016 (32) in Eversheds Sutherland’s tally than any other single issue.

“Firms must not only have written supervisory procedures for AML, but must regularly review them and devote adequate resources to implement those policies and programs,” Pollet says. “When you discover problems, you need to fix them — in particular when you tell the regulator you will.”

Likewise, Pollet and Rubin are anticipating more enforcement cases arising that involve senior clients, another area where both FINRA and the SEC have been increasing oversight.

“FINRA is helping firms do some of the things that firms have wanted to do,” Rubin says. “Because previously if they had concerns they sort of had their hands tied behind their back about what types of transactions they could stop or how they could go about asking for this type of information without intruding in the privacy of the customer.”

Source Reference By :  Financial Planning

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