The Financial Industry Regulatory Authority on Thursday morning released its annual budget for the first time, stating that despite “revenue challenges,” FINRA will not increase member fees.
Projected revenue is flat for 2018, at about $822 million.
“FINRA is to be applauded for an unprecedented level of transparency into its budgeting process and financial challenges,” Brad Bennett, former FINRA enforcement chief who’s now a partner at Baker Botts in Washington, said.
“The 2018 budget underscores the magnitude of the operational hurdles faced by FINRA and the need for significant belt tightening,” Bennett adds, pointing to the $136 million in reserves that FINRA is “committed to spend to make up for the revenue shortfall.”
The self-regulator’s 2018 budget “sends a clear signal that FINRA intends to wean itself off of its reliance on enforcement fines to bring its revenues in line with its expenses,” Bennett said.
“In my experience,” Bennett continued, “enforcement decisions were never driven by revenue considerations but rather by the merits and facts of the case before FINRA. However, the industry will surely appreciate the absolute visibility into how enforcement fines are spent.”
FINRA’s budget states that assets under management by member firms have increased, the number of registered representatives has remained largely constant and innovations in fintech and other areas present new challenges.
What’s more, the Securities and Exchange Commission is relying more on FINRA to supervise broker-dealers.
FINRA CEO Robert Cook and FINRA Chairman William Heyman note in the budget summary that while FINRA welcomes “these opportunities, … projected 2018 operating revenue of approximately $822 million is flat relative to 2013, when FINRA last implemented fee increases.”
Instead of hiking member firm fees, in line with the broker-dealer regulator’s Financial Guiding Principles, FINRA “will leverage excess reserves to support operations while deferring fee increases.”
The budget summary notes that since 2013, FINRA’s expense increases have stayed largely in line with inflation, at an annual rate of approximately 1.5%.
Cost-saving efforts have focused on managing compensation costs, as well as other organizational and process improvements.
FINRA will hold senior officer salaries flat in 2018 as well, as it has for the last two years.
Further, FINRA states that it has identified “further expense reductions for 2018, and through FINRA360, will continue to seek other efficiencies and opportunities to better leverage technology.”
- FINRA said that funds from its 2018 will be allocated as follows among these key functions:
- Member regulation: 32%
- Market regulation: 14%
- Enforcement 12%
- Transparency Services: 8%
- Registration and Disclosure: 7%
- Dispute Resolution: 5%
- Other regulatory operations: 13%
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Melanie Waddell
Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.
