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– In the US, findings include 43% Increase in total FINRA fines in 2015 –
Duff & Phelps, the premier global valuation, corporate finance and regulatory services advisor, today announced the release of the Global Enforcement Review 2016 report, which provides analysis and commentary on global enforcement trends in the financial services industry. Key findings from the U.S.-specific section of the report include the following:
- Total financial penalties levied by the Financial Industry Regulatory Authority (“FINRA”) increased 43% to $191.7 million. FINRA’s average penalty size increased by 36%, driven by several fines of $10 million or more.
- The two other key U.S. regulators, the Securities and Exchanges Commission (“SEC”) and the Commodity Futures and Trading Commission (“CFTC”), saw aggregate fines remain flat at $4.19 billion and $3.14 billion respectively - an increase of 1% and a decline of 4%, respectively.
- The SEC was also notable for its increased use of a data-driven approach in cases involving complex insider trading rings. This approach was used, for example, to identify an adviser who was disproportionately allocating profitable trades to favored accounts.
- With respect to whistleblower actions, the SEC continues to have the largest budget to encourage whistleblowing disclosures, paying out almost $38 million to eight whistleblowers in 2015. In the aggregate, SEC whistleblower disclosures rose from 3,620 in 2014 to 3,923 in 2015.
Monique Melis, Managing Director within Duff & Phelps’ Compliance and Regulatory Consulting practice and global service line head of Regulatory Consulting, commented: “U.S. regulators continue to be keenly focused on individual wrongdoing and insider trading cases, an area in which they have earned considerable success. Data-driven approaches and new technologies are playing a meaningful role in this respect, as they provide new tools and tactics for regulators to detect and prosecute such cases. These kinds of enforcement actions advance two clear objectives for regulators, regardless of jurisdiction: they punish individual bad actors, and send a powerful deterrent about the need for organizations to build and maintain a culture of compliance.”
The review also studied financial penalties globally:
- The UK financial regulator, the Financial Conduct Authority (“FCA”), posted £905.2 million in total fines for 2015 - a 38% decrease compared to 2014 as the body concluded investigations into Libor manipulation.
- In Hong Kong, the Securities and Futures Commission (“SFC”) reported a 13% increase in aggregate penalties to HK$70.9 million, which was the result of some large individual fines, including one penalty which accounted for more than 30% of the total penalties it imposed during the financial year.
Figure A: Change in Total Financial Penalty Amount from 2014 to 20151
Change in Total Financial Penalty Amount
The increasing use of data in enforcement actions also has a global component, with a corresponding impact on the slowdown of expenditure and hiring by financial regulators. Across the FCA, CFTC, SEC, FINRA and SFC, expenditure rose by 9.6% on average over the last fiscal year, while staff numbers increased 3.6%. This contrasts with the double-digit growth at many of the regulators in previous years.
Figure B: Annual expenditure and Staff Growth Rates by Regulator2
Annual expenditure and Staff Growth Rates by Regulator
In compiling the Report, Duff & Phelps studied data released by the UK Financial Conduct Authority, the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission, the U.S. Financial Industry Regulatory Authority, and the Securities and Futures Commission of Hong Kong published in 2015 and recent years.
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Duff & Phelps is the premier global valuation and corporate finance advisor with expertise in complex valuation, dispute and legal management consulting, M&A, restructuring, and compliance and regulatory consulting. The firm’s more than 2,000 employees serve a diverse range of clients from offices around the world. For more information, visit www.duffandphelps.com.
M&A advisory, capital raising and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory and capital raising advisory services are provided in a number of European countries through Duff & Phelps Securities Ltd, UK, which includes branches in Ireland and Germany. Duff & Phelps Securities Ltd, UK, is regulated by the Financial Conduct Authority.
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November 28-29, 2018 La Jolla,
November 28-29, 2018 La Jolla