For all the rhetoric about beefing up oversight of the money management business, there are signs that enforcement may actually be sliding. The Financial Industry Regulatory Authority, which oversees U.S. broker-dealers, fined firms and individuals roughly $35 million in 2008, down 55 percent from $77.6 million in 2007, according to a report by Atlanta-based law firm Sutherland Asbill & Brennan.
To be fair, last year was FINRAs first full year in operation it was created in July 2007 through a merger of the National Association of Securities Dealers and the regulation, enforcement and arbitration arm of the New York Stock Exchange. The report compares FINRAs total 2008 fines to the combined published levies from the NYSE and NASD in 2007. Simple integration pains likely played some role in the 2008 dip in punitive fees, but experts say it was the calm before the storm.
"It does not take a genius to predict that actions will be substantially higher than in the past," says John Hewitt, a partner in the financial services practice of McCarter & English in New York. "Given the credit crisis, we expect activity to pick up considerably."
When theyre making money investors tend not to file complaints with regulators. And because theres typically a one-year lag between the time a complaint is filed and when a penalty is levied, it looks like FINRA could be heading for a banner year.