Brokers shudder when they hear about huge Finra fines, but the organization's primary focus is on the “blocking and tackling” of enforcing its rules rather than collecting huge financial penalties, a Finra official said Wednesday.
The Financial Industry Regulatory Authority Inc. does on occasion levy substantial penalties, but most of its enforcement efforts are focused on situations involving investor rip-offs.
“It's a lot of cases that don't involve fraud, that don't involve a lot of big dollars,” Russell Ryan, Finra senior vice president and deputy chief of enforcement, said at the Securities Docket Securities Enforcement Forum in Washington. “Someone's got to enforce these rule violations. That's a space that we're very good at.”
Finra
concentrates on supervisory lapses, sales of unsuitable complex products — especially those
targeting elderly investors — and brokers engaging in outside business activities and “selling away” from the firm's menu of products.
The self-regulatory organization does not step into areas that are handled by government agencies.
“We're there really to discipline,” Mr. Ryan said. “We're not in the business of law enforcement and punishing people. We do not act as a government law enforcement agency.”
He tried to reassure the audience of compliance professionals that Finra doesn't try to run up the bill when it does levy fines.
“I don't sense any indications that we're out to set records,” Mr. Ryan said. “We look at precedent; we look at sanction guidelines. We take it from there.”
Brokers are struggling to follow suitability rules with the proliferation of complex products, said Jeffrey Holik, a partner at Shulman Rogers.
“The best risk mitigator is really good training,” Mr. Holik said at the forum. “Often, the sales force doesn't understand what it is selling.”
Sometimes when they testify before Finra, brokers still can't explain how a product works, Mr. Ryan said.
“What are you thinking,” he said of brokers who have prepared for meetings with Finra over unsuitable sales. “You don't understand it after you're under scrutiny for not understanding it?”
