While the Securities and Exchange Commission and other government regulators hit companies with record fines, the Financial Industry Regulatory Authority's monetary sanctions significantly declined in 2013, despite bringing nearly the same number of disciplinary actions as it did in 2012.

The self-regulatory organization had a 27 percent decrease in fines, according to an annual review of disciplinary notices by the law firm Sutherland Asbill & Brennan. That drop doesn't correspond with a relatively flat number of disciplinary actions, 1,535 filed in 2013, a decrease of less than 1 percent from the previous year.

“The fines have likely fallen because FINRA has run through its inventory of cases stemming from the Financial Crisis,” says partner Brian Rubin, who heads Sutherland's securities litigation and enforcement group. “It is bringing more basic cases that don't generate high fines.”

Some categories did show year-over-year increases. Electronic communication cases led to more FINRA fines than any other action in 2013. It fined firms more than $15 million in 66 cases. Although the increase in the number of cases year-over-year was small, only a 5 percent, fines more than doubled, from $6.5 million to $15.1 million. Driving much of that increase was a $7.5 million fine levied against securities firm LPL Financial Holdings over internal failures that prevented it from accessing hundreds of millions of emails and for making material misrepresentations during a related investigation. “Firms need to focus on technology issues, like email retention and surveillance, because FINRA has been concentrating on this issue,” says Sutherland Associate Andrew McCormick, co-author of the report.

The second largest category of fines involved trade reporting. Most of these 198 cases led to relatively small fines, but nevertheless added up to $12.1 million. By comparison, in 2012, FINRA brought 158 trade reporting cases that resulted in $7.7 million of fines.

Investigations into short selling led to $7.2 million in fines in 2013, the third-largest total for the year and a 41 percent increase from 2012. Despite the monetary increase, the number of short selling cases was only two higher than the 38 logged in 2012. “Books and records” cases resulted in the fourth-largest amount of FINRA fines in 2013, with $7.1 million in fines. “The presence of books and records cases and trade reporting cases [on the list] demonstrates that FINRA takes very seriously issues that may appear to be administrative or technical,” the report says.

On the other end of the spectrum, the number of cases targeting the suitability of investors dropped by 38 percent and fines fell 74 percent. There was also “an incredible slowdown” in the amount of fines imposed in cases that involved misleading or inaccurate advertising cases in 2013, according to the report. Although the number of cases increased, fines plummeted by $2.8 million, a 73 percent drop. After back-to-back increases in fines of $1 million and above in 2011 and 2012, these large fines also dropped significantly in 2013. Despite the decrease, six of the eight 2013 “supersized” fines were reported during the second half of the year, possibly a signal that large fines may be on the rebound, the authors say.

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