Warren Raises Concerns About Steep Decline in Enforcement by Financial Industry’s Self-Regulatory Agency

August 29, 2024

Warren Raises Concerns About Steep Decline in Enforcement by Financial Industry's Self-Regulatory Agency

"(F)inancial crimes cannot be prevented if you take the cop off the beat."

"The new reports of declining enforcement appear to indicate that FINRA has lost sight of its mission: protecting investors and promoting market integrity."

Text of Letter (PDF)

Washington, D.C. - U.S. Senator Elizabeth Warren (D-Mass.) wrote to the Financial Industry Regulatory Authority (FINRA) requesting an explanation for the organization's record-low number of enforcement actions on financial crimes.

Established in 2007, FINRA is a self-regulatory, non-governmental entity responsible for ensuring securities firms and brokers operate fairly and honestly.

"The agency's mission is "to protect investors and promote market integrity," said Senator Warren, "But financial crimes cannot be prevented if you take the cop off the beat."

A June 2024 Bloomberg report revealed that enforcement actions by FINRA in 2023 "slid to the lowest level in history" and FINRA's "(t)otal fines…are down by about half since a peak in 2016." This decrease coincides with the start of FINRA360, FINRA's organization-wide transformation that began seven years ago, which, according to FINRA, was designed to make the organization as "effective and efficient" as possible. However, since the launch of FINRA360, enforcement actions have dropped each year and are now at their lowest since FINRA's inception. Additionally, the value of fines imposed by the agency is down from $173.8 million in 2016 to $88.4 million in 2023.

To make matters worse, the agency has appeared to limit transparency about its enforcement actions. For example, according to Bloomberg, publication of press releases promoting cases has often been eliminated by FINRA leaders. Last year, FINRA issued releases for "just 10 of 426 enforcement actions, compared with 63 in 2015," and details on cases are difficult to find in FINRA's database.

"The new reports of declining enforcement appear to indicate that FINRA has lost sight of its mission: protecting investors and promoting market integrity," said Senator Warren.

Senator Warren requested details of investigations opened by FINRA since 2016, agency criteria for publicizing an enforcement action, more information about the FINRA360 program, and evidence of a decline in bad actor firms and individuals by September 13, 2024.

Senator Warren has led efforts in Congress to protect investors and enhance transparency at FINRA:

• In March 2022, Senator Elizabeth Warren (D-Mass) and Congresswoman Katie Porter (D-Calif.) called out FINRA for failure to provide complete responses to their letter about Wells Fargo's rigging of the arbitration process.
• In February 2022, Senator Elizabeth Warren (D-Mass) and Congresswoman Katie Porter (D-Calif.) sent a letter to FINRA questioning new reports of misbehavior by Wells Fargo that raise concerns about the self-regulatory organization's ability to fairly and effectively police the financial system. The letter followed allegations that Wells Fargo, with the permission of FINRA, rigged the arbitration process by manipulating a list of arbitrators in a case in which the bank was alleged to have mishandled a customer's investments.
• In February 2021, Senator Elizabeth Warren (D-Mass.), asked how FINRA would respond to Robinhood's role in market volatility, its decision to cut off customers' trading, and the broader concerns about market fairness that these events represent.
• In March 2019, Senator Elizabeth Warren (D-Mass.) sent a letter to the Financial Industry Regulatory Authority (FINRA) highlighting research on the value of strong broker expungement rules that ensure the availability of complete and transparent information and protect investors. The Senator's letter followed FINRA's consideration of changes to the processes by which brokers can scrub their records of customer complaints.
• In March 2018, Senator Elizabeth Warren (D-Mass.) introduced the Compensation for Cheated Investors Act to direct FINRA to use its existing authority to compensate investors for unpaid arbitration awards against FINRA members.
• In May 2016, Senators Elizabeth Warren (D-Mass.) and Tom Cotton (R-Ark.) asked FINRA about steps the independent regulator was taking to address misconduct among financial advisers and to protect investors. The letter came after a study found high rates of misconduct among advisers under FINRA's supervision, and revealed ineffective sanctions for this misconduct.

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