Critics question Finra as watchdog’s caseload plunges
Two days after Christmas, a prominent Wall Street regulator updated a database with news of interest to the industry: A $1.4 trillion brokerage had been slapped with one of the year’s biggest fines for allegedly losing track of almost a million trades.
But there was no press release when the Financial Industry Regulatory Authority hit LPL Financial Holdings Inc. with the $6 million penalty. Nor did Finra seek attention for its multimillion-dollar sanctions of Goldman Sachs Group Inc. and Barclays Plc months earlier.
The quiet end to those probes capped a year in which the number of enforcement actions brought by the brokerage industry’s self-funded regulator slid to the lowest level in its history. Total fines picked up last year but are down by about half since a peak in 2016. Meanwhile, Finra’s headcount and budget have expanded.
The declines are raising concerns that the watchdog isn’t policing firms with the same aggressive posture it adopted after the 2008 financial crisis and multibillion-dollar Ponzi scams by brokerage operators Bernie Madoff and Allen Stanford, both of which went undetected for years.
Finra rejects the idea that it has pulled back on enforcement. But some are raising the question: Will the regulator catch the industry’s next big fraud?
“Right now, there’s no big crisis going on,” said Brad Bennett, Finra’s enforcement director from 2011 to 2017. “The tide is in, but as sure as the sun rises in the east, the tide will go out. And people will be wondering: Where the hell was Finra?”
The changes at Finra have frustrated some enforcement staff, who have pushed the regulator to more aggressively pursue and promote cases, according to people familiar with the matter. In multiple instances in recent
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